Question
Suppose that in the Prendergast model the probability of public servants' identification of applicants' true types equals p>1/2 p >1/2 and does not depend on
Suppose that in the Prendergast model the probability of public servants' identification of applicants' true types equals p>1/2
p>1/2 and does not depend on public servants' efforts. Therefore the only purpose of an audit is to correct unavoidable errors made by public servants and not penalize them should such errors be found.
Assuming c(x) = x^2
c(x)=x2
, and p = 0.6
p=0.6, what should be the cost of an audit caused by a customer complaint? What should be the cost of a random audit of cases where no complaints were filed? (Enter two numbers in respective order)
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