Exam 20: Contracts and Moral Hazards

Assume a lawyer signs a contingency fee contract with a plaintiff.The case ends up settling for $1 million,of which the plaintiff received $800,000.It is obvious this contract was efficient.

Season ticket holders often purchase their tickets before a season begins.There is often a discount associated with season tickets.Why?

Rents for stores at shopping malls are usually tied to the profits of the store.Comment on how this arrangement affects the mall owner's income versus a fixed rent.

Efficiency in risk bearing implies that

In a principal-agent problem,if the contract implies that the more risk-averse agent will bear less risk,we can say that this contract exhibits

Socially inefficient outcomes are possible when

Describe the characteristics of an efficient contract between a principal and an agent.

Which of the following workers is most likely to be asked to post a bond?

A firm uses an efficiency wage scheme to deter workers from shirking.A risk-neutral worker will not shirk if

The outcome of the state of nature effects the payoff to the agent under a

A good salesperson can sell $200,000 worth of goods,while a poor one can sell only a smaller amount worth of goods.Job applicants know if they are good or bad,but the firm does not.A firm will offer job applicants a choice between a fixed salary of $20,000 or a 20% commission.Assume risk-neutral salespersons and no opportunistic behavior.Given that the firm wants to distinguish a prospective good salesperson from a poor one,what should be the sales amount of a poor salesperson?

Under deferred compensation packages,

Many art galleries keep 60% of the sale price of a painting.However,art galleries do not typically pay the artist while the painting hangs on the wall.This form of contingency contract may be efficient if

If all firms pay an efficiency wage,then

Season tickets entail a certain amount of risk due to unpredictable team quality,injuries,weather,and so forth.Who is most likely to purchase season tickets?

If the principal has full information,production efficiency without supervision can occur with

Suppose a plaintiff hires a lawyer to represent her in a court case.Under which of the following contracts is efficiency in risk bearing assured?

One reason that lawyers might prefer a contingent contract when representing a plaintiff in a tort case is that

A key aspect of the principal-agent problem is that

If a firm was owned by its employees,