Question: Hello someone please help me for this question Show the steps please 3. We consider the principalagent problems. Now, assume there are 91. possible outcomes

Hello someone please help me for this question

Show the steps please

Hello someone please help me for this questionShow the steps please 3.

3. We consider the principalagent problems. Now, assume there are 91. possible outcomes [11,. .. 12:\"). The agent can take one of two actions, a. or 51 which inuence the probability of occurrence of the outcomes. Thus, we let in]. be the probability that I; is observed if the ag-t chooses action a, and in, be the probability that I.- is observed if the agent chooses action h. Let s,- = 5:11;} be the payment from the principal to the agent if I,- is observed. Then the expected prot of the principal if the agent chooses the action :5, say, is Elli} lm As for the agent, let us suppose that he is risk-averse and seeks to maximize V011 NeumarmMorgenstern utility function of the payment, can and the cost ofhis action is c,I ifa is chosen1 and ob ifh is chosen. {a} Show the IC condition which has to be satised if agent chooses the action I!) even if the choice of action is not observable for principal. {b} Suppose that if the agent does not participate, he gets utility t1. Show the IR condition. {c} Suppose there's no asymmetric information problem1 and the prin cipal chooses the action b for an agent. In this case, the agent chooses b. Show the rst order condition of the prot maximization problem with respect to s,- by the principle

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