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8. On the labor market, an agent may be of low or high type. The personnel manager (Mrs Smith) can offer contracts (w; e); where
8. On the labor market, an agent may be of low or high type. The personnel manager (Mrs Smith) can offer contracts (w; e); where w stands for the wage and e for the required effort. She cannot observe the quality, but she knows the utility function of the low-quality type ulow(w; e) = 2w - e and of the high-quality type ubigb(w; e) - w - 2e: The agent's utility is 0 if he rejects both contracts. Please note effort is observed. The personnel manager offers menus of two contracts. Describe the agent's decision in each case. a. (wl; el)=(5, 4) and (w2; e2)=(3, 1) b. (wl; el) = (3; 2) and (W2; e2) = (4; 3) c. (wl; el) = (6; 1) and (w2; e2) = (4; 2) 8. On the labor market, an agent may be of low or high type. The personnel manager (Mrs Smith) can offer contracts (w; e); where w stands for the wage and e for the required effort. She cannot observe the quality, but she knows the utility function of the low-quality type ulow(w; e) = 2w - e and of the high-quality type ubigb(w; e) - w - 2e: The agent's utility is 0 if he rejects both contracts. Please note effort is observed. The personnel manager offers menus of two contracts. Describe the agent's decision in each case. a. (wl; el)=(5, 4) and (w2; e2)=(3, 1) b. (wl; el) = (3; 2) and (W2; e2) = (4; 3) c. (wl; el) = (6; 1) and (w2; e2) = (4; 2)
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