asymmetric_new

asymmetric_new - Asymmetric Information 1. (See problem...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Asymmetric Information 1. (See problem 18.1) A lawyer works as an agent for an injured plaintiff. The expected award from the case is e, where e is the lawyer’s effort. The cost of the lawyer’s effort is e 2 /2. a. What is the lawyer’s effort, his surplus, and the plaintiff’s surplus in equilibrium when the lawyer’s contingency is 1/3 (i.e., the lawyer gets 1/3 of the award)? b. Repeat part (a) for a general contingency fee of c. c. What is the optimal contingency fee from the perspective of the plaintiff? Compute the surpluses for the lawyer and plaintiff. d. What would be the optimal contingency fee from the plaintiff’s perspective if he could “sell” the case to the lawyer (i.e., the plaintiff would give the final award to the lawyer in exchange for some up-front payment)? Answer: a. L=lawyer’s surplus & P=plaintiff’s surplus. L=(1/3)e-e 2 /2. L/ e=1/3 – e =0, so e*=1/3. L*=1/9 – 1/18 = 1/18. P*=(2/3)e=2/9. b.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/08/2008 for the course ECON 101 taught by Professor Buddin during the Spring '08 term at UCLA.

Page1 / 2

asymmetric_new - Asymmetric Information 1. (See problem...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online