Suppose A and B are partners in a firm but each partner receives a disutility for exerting some effort: aka the utility of partner i ? {A,B}, if the effort levels of A and B are e1 and e2 respectively, is ui(e1,e2) = 6 log (1+e1+e2) - ei

1) For any effort that B could be exerting, determine the effort level A would exert to maximize their own utility. Repeat again to determine the effort level for partner B to maximize their own utility.

2) What effort level e* is e1=e2=e* a nash equilibrium?

3) If the two partners could write some binding contract about the level of effort e** they would choose, what effort level e** will they end up choosing?

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