Consider a principal-agent model with three possible levels of effort by the agent: e, ez, es....

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Consider a principal-agent model with three possible levels of effort by the agent: e₁, ez, es. The revenue of the principal from the agent's effort can take two values: high (revenue = 10), or low (revenue = 0). The probabilities of a high revenue conditional on effort are as follows: p(high revenue | e₁) = 2/3 (this means that when the agent chooses effort level e₁, the probability that revenue is high is equal to 2/3). p(high revenue | e₂) = ½. p(high revenue | e3) = 1/3. The agent suffers disutility from effort. The disutilities are given as follows: g(ei) = 5/3 ; g(e) = 8/5 g(es) = 4/3. The principal pays a wage (w) to the agent. The agent's utility is equal to √w-g(e), where e takes one of the three levels described above. The agent has reservation utility of zero. The principal's utility is equal to: expected revenue-w. What is the optimal contract for the principal when effort is observable (the contract must specify a wage and an effort level). Consider a principal-agent model with three possible levels of effort by the agent: e₁, ez, es. The revenue of the principal from the agent's effort can take two values: high (revenue = 10), or low (revenue = 0). The probabilities of a high revenue conditional on effort are as follows: p(high revenue | e₁) = 2/3 (this means that when the agent chooses effort level e₁, the probability that revenue is high is equal to 2/3). p(high revenue | e₂) = ½. p(high revenue | e3) = 1/3. The agent suffers disutility from effort. The disutilities are given as follows: g(ei) = 5/3 ; g(e) = 8/5 g(es) = 4/3. The principal pays a wage (w) to the agent. The agent's utility is equal to √w-g(e), where e takes one of the three levels described above. The agent has reservation utility of zero. The principal's utility is equal to: expected revenue-w. What is the optimal contract for the principal when effort is observable (the contract must specify a wage and an effort level). Consider a principal-agent model with three possible levels of effort by the agent: e₁, ez, es. The revenue of the principal from the agent's effort can take two values: high (revenue = 10), or low (revenue = 0). The probabilities of a high revenue conditional on effort are as follows: p(high revenue | e₁) = 2/3 (this means that when the agent chooses effort level e₁, the probability that revenue is high is equal to 2/3). p(high revenue | e₂) = ½. p(high revenue | e3) = 1/3. The agent suffers disutility from effort. The disutilities are given as follows: g(ei) = 5/3 ; g(e) = 8/5 g(es) = 4/3. The principal pays a wage (w) to the agent. The agent's utility is equal to √w-g(e), where e takes one of the three levels described above. The agent has reservation utility of zero. The principal's utility is equal to: expected revenue-w. What is the optimal contract for the principal when effort is observable (the contract must specify a wage and an effort level). Consider a principal-agent model with three possible levels of effort by the agent: e₁, ez, es. The revenue of the principal from the agent's effort can take two values: high (revenue = 10), or low (revenue = 0). The probabilities of a high revenue conditional on effort are as follows: p(high revenue | e₁) = 2/3 (this means that when the agent chooses effort level e₁, the probability that revenue is high is equal to 2/3). p(high revenue | e₂) = ½. p(high revenue | e3) = 1/3. The agent suffers disutility from effort. The disutilities are given as follows: g(ei) = 5/3 ; g(e) = 8/5 g(es) = 4/3. The principal pays a wage (w) to the agent. The agent's utility is equal to √w-g(e), where e takes one of the three levels described above. The agent has reservation utility of zero. The principal's utility is equal to: expected revenue-w. What is the optimal contract for the principal when effort is observable (the contract must specify a wage and an effort level). Consider a principal-agent model with three possible levels of effort by the agent: e₁, ez, es. The revenue of the principal from the agent's effort can take two values: high (revenue = 10), or low (revenue = 0). The probabilities of a high revenue conditional on effort are as follows: p(high revenue | e₁) = 2/3 (this means that when the agent chooses effort level e₁, the probability that revenue is high is equal to 2/3). p(high revenue | e₂) = ½. p(high revenue | e3) = 1/3. The agent suffers disutility from effort. The disutilities are given as follows: g(ei) = 5/3 ; g(e) = 8/5 g(es) = 4/3. The principal pays a wage (w) to the agent. The agent's utility is equal to √w-g(e), where e takes one of the three levels described above. The agent has reservation utility of zero. The principal's utility is equal to: expected revenue-w. What is the optimal contract for the principal when effort is observable (the contract must specify a wage and an effort level). Consider a principal-agent model with three possible levels of effort by the agent: e₁, ez, es. The revenue of the principal from the agent's effort can take two values: high (revenue = 10), or low (revenue = 0). The probabilities of a high revenue conditional on effort are as follows: p(high revenue | e₁) = 2/3 (this means that when the agent chooses effort level e₁, the probability that revenue is high is equal to 2/3). p(high revenue | e₂) = ½. p(high revenue | e3) = 1/3. The agent suffers disutility from effort. The disutilities are given as follows: g(ei) = 5/3 ; g(e) = 8/5 g(es) = 4/3. The principal pays a wage (w) to the agent. The agent's utility is equal to √w-g(e), where e takes one of the three levels described above. The agent has reservation utility of zero. The principal's utility is equal to: expected revenue-w. What is the optimal contract for the principal when effort is observable (the contract must specify a wage and an effort level).

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Information Revenue High 10 Efforts e ez ez Juna J xus 1 25 P High e 43 2 P Highe 12 PHigh 23 2 ... View the full answer