What are the first$-$best production levels? $(2$ points$)$

$($b$)$ What are the contracts to implement the first$-$best production levels?

$(2$ points$)$

$($c$)$ How much profit would the distributor make if the insurance company

offers a menu of contracts $($q

I

$1$

$,$ tI

$1$

$),($q

E

$1$

$,$ tE

$1$

$)?(2$ points$)$

$($d$)$ What are the second$-$best production levels? $(2$ points$)$

$($e$)$ What is the menu of contracts for the second$-$best production levels?

$(1$ point$)$

$($f$)$ What is the information rent of an efficient agent for the menu of contracts for the second$-$best production levels? Is this higher or lower than

the profit gained for the menu of contracts for the first$-$best production

levels? $(1$ point$)$