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Consider the following game, with a risk-neutral principal with preferences 1! = q w hiring an agent with preferences U = J17 e.. The agent's

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Consider the following game, with a risk-neutral principal with preferences 1! = q w hiring an agent with preferences U = J17 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: 0.6 l 0,4 e=10 0.1 1 0.9 d) Find the optimal contract under the assumption that agents compete for principals. Begin by identifying which constraints will bind with equality! e) What would the contract look like if the principal tried to push the wages when q=O to zero? Would the principal want to do this? Explain

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