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This question is a question of asymmetric information where it is assuming observable and contractable A rm faces a worker who may be one of

This question is a question of asymmetric information where it is assuming observable and contractable

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A rm faces a worker who may be one of two types, with equal probabilities. The rm's prots from a type 73 worker are given by m- = e 83') 75 = 1, 2, where Br is the effort supplied by a type 2' worker and and 83- is the payment to a type i worker. The cost function of the more productive worker (type 1) is given by (:1 = e? and the cost function of the less productive worker (type 2) is given by (:2 = (16%, where a > 1. The utility function of a worker of type 2' is given by: m = Sr Cg. Find the solution to the rm's problem (assuming that effort is observable and contractible)

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