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BPP Field Exam 2010 Answers (view source)
Revision as of 19:19, 29 March 2011
, 19:19, 29 March 2011→Question B1.3
The CEO can design a scheme that exploits the risk aversion of the agents using chance. The contract would work like this: If all employees exert work, each worker will get an equal share <math>1/N</math> of the effort. However, if any single worker does NOT work, then the payoffs will be determined by a lottery in which each employee gets a <math>\frac{1}{N}</math> chance of getting 100% of the combined output.
Note that CARA utility is <math>u(c)=1-e^{-\rho c}</math>. The employee's utility from working is <math>\exp{[\frac{1}{N}\sum_{i\neq j} z(e_{j})+\frac{1}{N}z(e_{i})-1]</math>
===Question C1: Agenda Control and Status Quo===
