Please don't just copy and paste another answer. Thank you.

1. This problem considers an extension of the Ellis and McGuire (EM, 1986) problem. Imagine a doctor trying to decide which of exactly two drugs A and B to prescribe for a single representative patient. The factors that enter into the doctor's utility from prescribing each drug include: i) The bribes or side payments S; received from the pharmaceutical companies for each drug prescription, which for this problem should be thought of as persuasion payments, not information payments, SA and SB. ii) The benefit to the patient expected for each drug, calculated in terms of its efficacy E where without loss of generality we assume EA> Ep. Implicitly we assume E is measured in dollars. Doctors attach a weight a to these patient benefits (efficacy). iii) The out of pocket (OOP) cost to the patient for each drug, OA = 0 PA and O3 = 0 PB where = 0 is the fraction of the drug fee paid by the consumer for either drug, PA and P3 are the prices chosen for drugs A and B, and the consumer pays the same fraction @ as specified by her health plan. For simplicity, assume that the marginal cost of both drugs is $0. The doctor cares about revenue P; as well as E; and Oj, although perhaps is an imperfect agent. Hence the doctor's utility function for drug i is: U; =S; + a E; -BOP; where i = A, B Where () Ep. Implicitly we assume E is measured in dollars. Doctors attach a weight a to these patient benefits (efficacy). iii) The out of pocket (OOP) cost to the patient for each drug, OA = 0 PA and O3 = 0 PB where = 0 is the fraction of the drug fee paid by the consumer for either drug, PA and P3 are the prices chosen for drugs A and B, and the consumer pays the same fraction @ as specified by her health plan. For simplicity, assume that the marginal cost of both drugs is $0. The doctor cares about revenue P; as well as E; and Oj, although perhaps is an imperfect agent. Hence the doctor's utility function for drug i is: U; =S; + a E; -BOP; where i = A, B Where ()