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Consider the following game, with a risk-neutral principal with preferences II = q w hiring an agent with preferences U = W e.. The agent's
Consider the following game, with a risk-neutral principal with preferences II = q w hiring an agent with preferences U = W e.. The agent's reservation utility is given by (.7 = 2, and the agent can choose between an effort level of 0 or an effort level of 10. Output is either 0 or 400 and follows the following probability distribution, a function of effort level and some uncertain factor: Probability (q=0) Probability (q=400) e=0 0.6 y 0.4 e=10 0.1 f 0.9 Interpret those constraints in words - what are they imposing on the contract being designed by the principal
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