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Consider a Principal (P) who employs an Agent (A) for the production of a good the quality of which is measured by q. P
Consider a Principal (P) who employs an Agent (A) for the production of a good the quality of which is measured by q. P pays A, p each period, and renews A's contract for the next period with probability q. Assume that A's utility is u = p-q and that in case A is fired, she will receive no unemployment benefit. If T is the lifetime of the contract, the value of the contract v = uT, and the enforcement rent are... (Hint: find T first) Select one: a. value: (p-1)/(1-q); enforcement rent: (p-1)/(1-q) b. value: (p-1)/(1-q); enforcement rent: (p-q)/(2-q) C. value: (p-q)/(2-q); enforcement rent: (p-q)/(1-q) d. value: (p-q)/(1-q); enforcement rent: (p-q)/(1-q) e. value: (p-q)/(1-q); enforcement rent: (p-1)/(1-q)
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