Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

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

Here is a link to the pdf version of dan ariellys

Here is a link to the pdf version of Dan Arielly's Predictably Irrational. http://radio.shabanali.com/predictable.pdf The Table of Contents starts on page 11. Scan through it and choose a chapter that looks interesting. ...

Assignmentxyz company enters into a contract with mary to

Assignment XYZ Company enters into a contract with Mary to landscape Ben's yard, using None Nursery to supply trees and buses. Kate owns the lot next to Ben's property. The landscaping is a gift from Mary to Ben, who is ...

Assignmentwe often have difficulty understanding how our

Assignment We often have difficulty understanding how our own customs and traditions could be viewed any way other than as right. In that regard, cultural relativism (viewing a custom from the other culture's perspective ...

Goal construct a case studyresearch paper that examines a

Goal: Construct a case study/research paper that examines a firm in the U.S. from a microeconomic standpoint and provide suggestions based on your findings. Step 1: Choose a firm for your focus. In addition to picking a ...

Scenario descriptionbigjet plans to launch a weekly flight

Scenario Description Bigjet plans to launch a weekly flight on a long-haul route. It faces four sets of decisions corresponding to short-run, medium-run, long-run, and very long-run operations. Short Run: In the short ru ...

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 ...

Meqa assignment 2its been three weeks since you started

MEQA Assignment 2 It's been three weeks since you started working for BioMed and there's still no trace of Selwyn. That means you're still BioMed's resident economic expert. Harry the CEO was pleased with your earlier wo ...

Q1 in quantity theory of money model mv py assume that v

Q1. In quantity theory of money model, MV = PY, assume that V is constant, M is growing at 6% per year, Y is growing at 3%. a. If r = 2, what is i? b. If the Fed reduces the money growth rate by 2% points per year, what ...

1 this question is for discussion in teamsas the semester

1. This question is for discussion in teams. As the semester progresses. we will discuss these issues in class. Visit The World Factbook at https://www.cia.govlibrarypublications:The-world-factbook'. In "Please select a ...

Assignmentone responsibility of an information assurance

Assignment One responsibility of an information assurance professional is to work with the organization's security team to explain risk assessment and report findings to executives. The report is likely to involve sensit ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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