Ask Question, Ask an Expert


Ask Microeconomics Expert

problem 1: A landlord, L, decides on a sharecropping arrangement with a tenant, T. L decides on the proportion, b, of output and the fixed wage, a to pay the tenant::

w = a + bY

Output, Y , depends on the level of effort, e, and also on the weather, ε:

Y = e + ε where var (ε) = σ2

T doesn't like a working and incurs a utility cost of effort: c (e) = ce2 = 2.

T has an outside option, u.

Furthermore, assume that L is risk neutral and therefore has the utility function: U (m) = m. T's utility has the functional form:

U (m) =  -e-rm

T's utility can also be written in terms of its certainty equivalent:

m - r . var (m)

where r is the degree of relative risk aversion.

Show all your workings with the following problems:

A) prepare down the L's and T's objective functions, in terms of their certainty equivalent.

B) What is Tís optimal level of effort, as a function of a and b?

C) What is the minimum level of a that T is willing to accept, given b?

D) prepare down the incentive compatibility and participation constraints.

E) find out the optimal level of a and b.

F) How should the output be shared between tenant and landlord if r = 0? What kind of contract is this? and if r →∞?

problem 2: A principal, P, pays an agent, A, the following wage:

w = α + β (z + γy)

z is a noisy measure of effort

z = e + x where x ˜ N (0, σ2x )

We cannot observe x. However, we can observe y. y is an informative signal of z, where y ˜ N(0, σ2y)

Further assume that Aís cost of e§ort is c (e) = e2 = 2; A has an outside option of zero; and has the utility function:

U (m) = -e-rm

Recall that, with normally distributed error terms:

Var (x + γy) = Var (x) + 2γCov (x, y) + γ2Var (y)

A) Show formally that the optimal weight, γ*, on signal y is such that:

γ* = - cov (x, y)/δ2y

B) What is the sign of γ if cov (x, y) < 0? Why?

C) How does γ vary with δ2y? Why?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9812

Have any Question? 

Related Questions in Microeconomics

Problem -the table below gives the income of each of four

Problem - The Table below gives the income of each of four individuals who are in a region. Calculate and plot the Lorenz curve and calculate the Gini coefficient for this economy. individual income 1 100 2 200 3 300 4 4 ...

Assignmentthe agile approach towards system analysis and

Assignment The agile approach towards system analysis and development emphasizes iterative and incremental development, in which requirements and solutions evolve through collaboration. Prepare a 1000 word essay on the r ...

Microeconomics assignmentdiscussion forumnote the video has

Microeconomics Assignment DISCUSSION Forum Note: The video has Closed Captioning. To activate it, start the video, mouse over the bottom of the video and click on the CC icon, then select from the menu. This week's discu ...

Economics assignment1 multiple product pricinganswer the

Economics Assignment 1. Multiple Product Pricing: Answer the following about the pricing of multiple products: a. Icarus Medical Supplies produces adhesives that are used to reassemble broken bones. Pindrop Medical Produ ...

Assignmentyou are the director of safety and health at

Assignment You are the Director of Safety and Health at Rotorcraft America, a mid-sized company that designs, manufactures and sells helicopters. Your organization has manufacturing operations in San Francisco, Californi ...

Economics assignmentcontentselect a news article with

Economics Assignment Content: Select a news article with economic implications within the previous six months and explain, analyze and expand the issue using the economic concepts and theory learned in this class. Includ ...

Question 1which of the following levels of supply chain

Question 1 Which of the following levels of supply chain information systems is most likely to provide the firm with a competitive advantage? A.Strategic planning B.Decision analysis C.Management control D.Transaction sy ...

Discussion questionconsider a group of documents that has

Discussion Question Consider a group of documents that has been selected from a much larger set of diverse documents so that the selected documents are as dissimilar from one another as possible. If we consider documents ...

Assignmentin this assignment you will discuss the role of

Assignment In this assignment, you will discuss the role of entrepreneurship in improving the economic condition of countries and individuals and understand the manner in which this perception has spread around the world ...

Assignment production cost analysis and estimation applied

Assignment: Production Cost Analysis and Estimation Applied Problems Please complete the following two applied problems: Problem 1: William is the owner of a small pizza shop and is thinking of increasing products and lo ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen