Question 1 In this question, we will consider a model of incentives and disagreement where the principal can either choose to give the agent an order, or persuade the worker. Unlike the model covered in class, orders are binding. There is a (P}rincipal and an (Algent. A works on a project: he chooses effort 8 at cost #2 and a binary decision (2' (either 1 or 1). There is a binary state ofthe world 3 (either 1 or i) that is not known until after the agent makes his choices. The project is successful if and only if the action matches the state (at = 3), in which case the principal receives revenue 0 = Be, where B > I). Otherwise, if the project fails, then the principal receives u = 0, and the principal also incurs an additional cost of c = l. P can offer A an incentive scheme ofthe form 1' = bu. So, the principals and agents payoffs are l 'fth ' tfil n=.E[u]1E[r]