a)

Is it a good idea to have a junior clerk in a

bank on an incentive contract? Is it a good idea to

have the chief executive officer of a bank on an incentive contract? Why or why not?

[8 marks]

(b)

Which model, Cournot or Bertrand, do you think provides a better approximation to competition

in each

of the following industries: steel manufacturing, hotels, insurance. Why?