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These questions concentrate on the game theory of money and banking.

Consider the Principle-Agent problem in relation to banking.

This is the problem.

A person is a Vice-President of a Bank, serving as the head of Commercial Lending. They receive a substantial bonus based on the volume and profitability of their department. The department both makes loans and collects the loans. Answer the following questions using this information.

2-b-i. Simply identify the Principal and the Agent in this problem?

2-b-ii. What is the moral hazard Problem regarding the Vice-President and his bonus?

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