Graduate IO-I (ECON 7111)
Solution to Problem Set 2 (Moral Hazard)
1. (a) When the agents action is observable, we need only IR constraint for a given e.
(i) For e = 1 to be implemented, the principal will solve the following problem:
max
t,t
2
1
2 1 p
(S
Graduate IO-I (ECON 7111)
Solution to Problem Set 3
1. (a) The game is an extensive game and the solution concept is subgame-perfect Nash
equilibrium. As usual, the analysis goes backwardly. The union knows that the
entrepreneur will accept its offer when
Graduate IO-I (ECON 7111)
A Solution to Problem Set 4 (Monopoly)
1. (a) Derive the second-order condition of the monopoly pricing with the profit (q) =
p(q)q C(q). What do you need to assumption for the first-order condition is
sufficient for the profit m
Graduate IO-I (ECON 7111)
Solution to Problem Set 1
1. (a) A student whose productivity is has two options: (i) Returning to Taiwan or (ii)
Getting a job in US. Let me denote the indifferent student (marginal type
student) between these two options. Then,