Question
A firm has a fixed sum of money B to allocate in bonus payments between two managers. Each manager appreciates receiving the bonus but resents
A firm has a fixed sum of money B to allocate in bonus payments between two managers. Each manager appreciates receiving the bonus but resents that the other manager receives a bonus as well. Let the preferences of the two managers be given by U_G = b_G c b_J and U_J= b_J c b_G
(a)Describe the Pareto effcient allocations when c = 0.
(b) Is there a Pareto effcient allocation when 0 < c < 1? If so, describe the Pareto effcient allocations.
(c) Is there a Pareto effcient allocation if c = 1? Is there a Pareto effcient allocation?
(d) Is there a Pareto-ecient allocation if c > 1? Is there a Pareto effcient allocation?
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