Suppose the principal is the buyer of a good and the agen 1s the seller 0 he good. Suppose the buyer s utility function is given by 1n 3 t {where In denotes the natural logarithmic function) and the seller\" s payo function is given by t Hg, where q 3 0 denotes the amount of the good and t 23 (} denotes the amount of transfer. Suppose that the buyer does not observe the seller's cost parameter 3, but it is common knowledge that this parameter can be either Q with it probability or fl with 1 r.) probability1 where Q <: fl and :2 e finally suppose that the buyer offers a menu of contracts aer seller observes his type makes report it. q="i" h="." find rst-best output levels for each seller. nds complete information optimal levels. can use an en: post veriable signal which is correlated with this takes two values oz="1." express ex rents in terms transfers outputs conditioned on reported realization. conditional probabilities signals are such pr or b="}" write down incentive compatibility participation constraints expectation over realization or. all satised equality when set at their lmrel. now parameters given as before but realizes ante stage than available only to buyer. second-best inefficient under possible>