Homework Answers
As the principal don't want the agent to leave he have to consider the efforts of the agent as high which means he has to take the effort e as 1
Utility of agent if he work else where is 1
U = w0.5-e
1 = w0.5-1
w0.5 = 2
Squaring on both side
w = 4
So the wage the principal should offer is 4
Answer: w = 4
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E.E. T - abe * A Ă Aa A * Aay. A U . AaBbCcDc AaBbCcDc...
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E.E. T - abe * A Ă Aa A * Aay. A U . AaBbCcDc AaBbCcDc AaBbc 1 Normal T Normal 1 No Spac... Heading 1 O Fin be Reg W Sele Editing Font Paragraph Styles 45-u, 20-5 High Effort Accept Otetu Low Effort 25-w, 2-4 Reject Don't Offer 0,0 0.0 Figure 2: A principal agent problem. What will the agent do in Figure 2. If the principal offers a fixed-wage of w = 25. Given that the principal (P)...
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