What is the optimal contract (b, s) for the principal when effort is not observed? 1 ? -1 b*= -, s* = 1+2 02 po2 21+ 2 1 b* = s*= 1+pol' po2-1 2(1+p02)2 Ob* = 0, s* = -1. O b* = 1700 15** 21+p07 -1 2(1+p02)2 : The salary is negative when O The salary is always negative because it is a franchise contract. O The salary cannot be negative. : 0 is a 2 parameter. The agent obtains zero utility if she does not contract with the principal. The principal maximizes his profit n=y-w. Assume initially that the principal can observe effort and thus can include it in the contract. 2 What is the optimal contract (a, s, b) the principal will offer the agent? a* = 1, b* = 1,s* = - -2 (1-po?). a* = 1, b*=0, s*= 1 2 O No other answer is correct. a* = 2,54= b*=0, s* =