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Unformatted text preview: Homework 5
1. Suppose that the disutility from effort is 50 from the very high effort, 40 from high effort, 20 from medium effort, 0 from low effort. All other numbers are the same as in class (or in the printout). (a) What is the best contract if the principal can require any level of effort effort in the contract. (b) Suppose now that the contract can specify only the base wage, and the bonus for making a sale. Describe the moral hazard problem. (c) Check all the contracts that in the trial-and-error analysis in class. Which of them generates the highest profit for the monopolist? (d) Can you suggest any improvement? 2. Problem 19. 3 from the printout. ...
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- Spring '09