We talk about a problem in Corporate Governance in active monitoring.

The monitoring level here is a variable and not a fixed value. A monitor learns about the Bad Project, which yields private benefit B, with probability M. The monitor learns nothing with probability 1-M. This probability of M of effective monitoring (=monitoring level) is dependent on the effort cost or what we call disutility of effort g(M) incurred by this monitor. It is assumed that disutility of effort is increasing g()>0 and convex g()>0. We also assume that g(0) and g(1) = . Let Rb be the borrowers reward. In successful case, its value is b/p < Rb < B/p. Let Rm be the monitors payoff in a successful case.

The question is: Show the expected return for the monitor.