4. Absolute vs relative performance pay: You want to incentivize your sales manager responsible for Los Angeles. His sales Z A : 6A + X A + XC depend on his effort 9A (which he controls), the state of the LA economy X A and the state of the California economy XC (both of which are random and out of his control)- You have a different sales manager for Orange county whose perfOrmance Z 3 = e 3 + X B + XC depend on the other manager's effort 83 (which is e'ectively known in equilibrium), the state of the Orange county economy X B and X0 as for the LA manager. All random variables X A, X B,Xc are independent. On t0p of the LA manager's base wage to, you want to reward him for his absolute sales Z A and/or his relative sales compared to Orange county Z A Z B- (a) Which of these two Options exposes the LA manager to less risk, and therefore requires the lower risk premium? (b) Now you consider also combinations of absolute sales, and relative sales, i.e. 6ZA+ (1 6)(ZA Z3). What level of 6 minimizes the risk to the LA manager? What happens as X B is much more uncertain than Xg? Interpret your result