Question: Consider this model with the following special values: u(2w); d H =15, d L =0, g=300, m=200, b=100, w b =wage base=0 e H results
Consider this model with the following special values:
u(2w); dH=15, dL=0, g=300, m=200, b=100, wb=wage base=0
eH results in a probability of profit levels g, m, b as 0.5, 0.3, 0.2
eL results in a probability of profit levels g, m, b as 0.2, 0.3, 0.5
Assuming the Principal chooses a pure wage scheme, what would be the expected payoffs for the Principal and the Agent?
Assuming the Principal chooses a pure franchise scheme, what would be the maximum franchise fee? What would be the expected payoffs for the Principal and the Agent?
Assuming the Principal chose a wage plus bonus scheme, what is the minimum bonus to induce eH? What would be the expected payoffs for the Principal and the Agent? Assume the bonus is awarded only for good, not for medium. In this scenario, what should the Principal choose to do?
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