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The owner of ABC Corporation decides to hire Jack as the manager. The profit of ABC is primarily depends on how much effort Jack puts
The owner of ABC Corporation decides to hire Jack as the manager. The profit of ABC is primarily depends on how much effort Jack puts on the management, as follows: Probabilities $10,000 $90,000 Low effort 70% 30% High effort 10% 90% Jack thinks choosing low effort" is costless and choosing high effort costs him $2,000. The owner cannot observe which effort level that Jack chooses. How can the owner do to induce Jack to choose high effort"? The balance sheet of Redhat Bank is as follows: Assets Liabilities Reserves $45M Capital $10M Rate-sensitive Loans $85M $75M Rate-sensitive deposits Insensitive Loans $100M Fixed-rate deposits $125M The required reserve ratio is 10% If $30 million of fixed-rate deposits are withdrawn, list all possible actions that Redhat should take. The owner of ABC Corporation decides to hire Jack as the manager. The profit of ABC is primarily depends on how much effort Jack puts on the management, as follows: Probabilities $10,000 $90,000 Low effort 70% 30% High effort 10% 90% Jack thinks choosing low effort" is costless and choosing high effort costs him $2,000. The owner cannot observe which effort level that Jack chooses. How can the owner do to induce Jack to choose high effort"? The balance sheet of Redhat Bank is as follows: Assets Liabilities Reserves $45M Capital $10M Rate-sensitive Loans $85M $75M Rate-sensitive deposits Insensitive Loans $100M Fixed-rate deposits $125M The required reserve ratio is 10% If $30 million of fixed-rate deposits are withdrawn, list all possible actions that Redhat should take
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