A principal can either legally make a decision herself (P-formal authority) or can decide to assign the formal right to make a decision to her subordinate (delegation). In each case the party that has the formal right to decide can make a decision on a new project. If that party is uninformed, they will defer the decision to the other party who will decide if they are informed. The principal's effort level of finding a new project is denoted by E; e denotes the subordinate's effort level. E and e represent the probability that both the principal and the agent discover a new project.

If the principal's preferred project is chosen, the principal gets a revenue/benefit of B. Finally, the probability that the agent's preferred project is also preferred by the principal is .

Assuming that both the principal and the agent choose to exert positive level of efforts in equilibrium. Which statement is true?

a.The subordinate will put in less effort in equilibrium under P-formal authority than under delegation.

b.The subordinate will put in less effort in equilibrium when E decreases.

c.The principal will put in more effort in equilibrium when increases.

d.The principal will put in less effort in equilibrium when B increases.

e.The decision will be decentralised until MB = MC.