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A risk - averse employer is looking to hire a risk - neutral worker. The employer s output Q depends on the worker s effort
A riskaverse employer is looking to hire a riskneutral worker. The employers output Q depends on the workers effort E in which has a disutility cE E Output can take two possible values: Q with probability E and Q with probability E with Q Q The employer offers a salary W and it has a utility over net profits given by lnQ W Assume the workers utility from the best alternative job is C a Write down the expected utility of the employer and the worker assuming the employer pays W if output is high, and W if output is low. b Derive the optimal firstbest contract C W W E assuming that effort E is observable, and that Q and Qc Assume effort E is observed only by the worker, and determine the incentive compatibility and the participation constraints. Derive the secondbest contract C W W E with Q and Qd Compare the firstbest C and the secondbest C contracts emerging from b and c explaining briefly any differences andor similarities between the two. Question marks A riskaverse employer is looking to hire a riskneutral worker. The employer's output depends on the worker's effort Ein which has a dis utility Output can take two possible values: with probability and with probability with The employer offers a salary and has a utility over net profits given Assume the worker's utility from the best alternative job Write down the expected utility the employer and the worker assuming the ployer pays output high, and output low. Derive the optimal firstbest contract assuming that effort observable, and that and Assume effort observed only the worker, and determine the incentive compatibility and the participation constraints. Derive the secondbest contract with and Compare the firstbest and the secondbest contracts emerging from and explaining briefly any differences similarities between the two.
A riskaverse employer is looking to hire a riskneutral worker. The employers output Q depends on the workers effort E in which has a disutility cE E Output can take two possible values: Q with probability E and Q with probability E with Q Q The employer offers a salary W and it has a utility over net profits given by lnQ W Assume the workers utility from the best alternative job is C a Write down the expected utility of the employer and the worker assuming the employer pays W if output is high, and W if output is low. b Derive the optimal firstbest contract C W W E assuming that effort E is observable, and that Q and Qc Assume effort E is observed only by the worker, and determine the incentive compatibility and the participation constraints. Derive the secondbest contract C W W E with Q and Qd Compare the firstbest C and the secondbest C contracts emerging from b and c explaining briefly any differences andor similarities between the two. Question marks A riskaverse employer is looking to hire a riskneutral worker.
The employer's output depends on the worker's effort Ein which has a dis
utility Output can take two possible values: with probability and
with probability with The employer offers a salary and has
a utility over net profits given Assume the worker's utility from the best
alternative job
Write down the expected utility the employer and the worker assuming the
ployer pays output high, and output low.
Derive the optimal firstbest contract assuming that effort
observable, and that and
Assume effort observed only the worker, and determine the incentive
compatibility and the participation constraints. Derive the secondbest contract
with and
Compare the firstbest and the secondbest contracts emerging from
and explaining briefly any differences similarities between the two.
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