Exam 16: Asymmetric Information

Suppose that you were again competing in a sealed-bid auction for the Vermeer painting which you value at $100,000,but now it is a first-price auction.What bid should you submit?

Let Be the manager's salary in an owner-manager version of the principal-agent problem.Which of the following is characteristic of a "powerful" incentive scheme?

Unlike an owner,a manager may be more concerned with _____ than with _____.Which pair of words best completes this sentence?

Which statement is true if the monopolist can observe the consumer's type in the nonlinear-pricing application?

Fill in the blanks: _____ is an important constraint in the moral-hazard problem because _____.

What tradeoffs are present in the moral-hazard-in-insurance problem?

Consider a firm composed of 5 workers,each with a utility function of the form ,where l is hours worked and w is the wage.Suppose the firm can monitor the number of hours worked by each worker and pays them Per hour.How many hours will each worker choose to work?

Which of the following illustrates adverse selection?

Which of the following is not a straightforward example of a (principal Agent) relationship?

Compared to the case in which a monopoly insurer offers the consumer a contract,if insurance is competitively provided:

What is the term for the contract that maximizes the principal's payoff subject to the constraint that the principal lacks the agent's private information?

Which statement best characterizes the second-best policy offered by a monopoly insurer when it can't observe the consumer's risk?

Adverse selection can arise in employment situations if information about worker quality is:

Continue to suppose as in the previous question that the utility function for each of the firm's 5 workers is ,where l is hours worked and w is the wage.Suppose now that the firm can only monitor the total hours worked by the group and pay each worker an equal share of the wage Times the total number of hours.How many hours will each worker choose to work?

When the monopoly insurer cannot observe the care taken by the insured party to avoid an accident,the most profitable contract for it:

In the 1980s,it became increasingly common for consumers to sign two-year leases rather than buying the cars outright.As these leases expired,the supply of used cars expanded considerably.How would the addition of this large volume of off-lease cars influence the possibility of a lemons problem on the used-car market?

Which contracting party gains from the use of a more sophisticated contract?

Suppose you were competing in a sealed-bid,second-price auction for a Vermeer painting,which you happen to value at $100,000.What bid should you submit?