= Consider the following principal agent problem with adverse selection. A firm faces a worker who may be one of two types, with equal probabilities. The firm's profits from a type i worker are given by Ti ei Si, i 1, 2, where e; is the effort supplied by a type i worker and s; is the payment to a type i worker. The cost function of the more productive worker (type 1) is given by c₁ = el and the cost function of the less productive worker (type 2) is given by c₂ = 2e2. The utility function of a worker of type i is given by: ui = si' c; and his opportunity cost utility is u = 0. Find the solution to the firm's problem (assuming that effort is observable and contractible). 1/2 =
Hi, questions are in the screenshot image. below is the advanced
Lecture: Imperfect Information syllables
1 Asymmetric Information
1.1 Principal-Agent Problems with Hidden Actions
1.2 General Discussion
2 TheGeneral-Principal Agent
3 A Simple Example of a Principal-Agent Problem
3.1 CASE1: FULL INFORMATION
3.2 Case2- Unobserved Effort
4 Principal-Agent - Hidden Information
4.1 CaseI: Complete Information
4.2 Diagram
4.3 CaseII: HiddenInformation
5 Education as a Signal
5.1 Perfect Information
5.2 Imperfect Information
5.3 Equilibrium (perfect Bayesian, PBE)
6 The Market for Lemons
6.1 Warranties as a Signal for Quality
7 Static
7.1 Revelation of Information
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Hi, where is P comes from? In the question, it says profit = ei - ci, how does pi*ei makes sense?
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