risk neutral. The firm will hire the manager at t=0. The manager then manages the firm. There is no moral hazard. That is, the manager does not have an unobserved effort decision. The output is produced at t=1. This output takes one of two possible values: H with probability or L with probability 1 where (0,1). The parameter varies cross-sectionally across managers. Each manager's reservation utility is R. Using the revelation principle, design a reporting scheme under which the manager is asked to directly and truthfully report his to the firm, and contingent on the report, he is awarded a fixed wage F() at t=0 and a bonus b() at t=1 if the output is H (there is no bonus payment if the output is zero). A third policy variable is the probability of hiring the manager ()[0,1]. Assume that for the firm, the cost of paying the bonus b is C(b), where C>1 and C1 and C