Exam 21: Asymmetric Information

In order to induce desirable behavior,one might employ _______,which is a contract or compensation policy that ties rewards or punishments to performance.

If Vincent van Gogh cut off his ear at the request of a love interest seeking proof of his love,this would be an example of:

The value of a worker's marginal product is $40 per hour for high-ability workers and $5 per hour for low-ability workers.The preferences of high-ability workers correspond to the utility function U_H(E,W)= W - 5E,and the preferences of low-ability workers correspond to the utility function U_L(E,W)= W - 8E.By law,everyone is required to attend at least ten years of school.Three-fourths of the population has low ability,and one-fourth has high ability.What can be said about the educational attainment of each type of worker in a separating equilibrium?

A salesperson works for a car dealership for 40 hours per week,but may choose not to work hard all of the time.The dealership's owner cannot observe the salesperson's effort,but can observe the number of cars sold.The salesperson's personal cost of working at the dealership is C(H)= 1,200 + H²,where H is the number of hours during which he works hard.The corresponding marginal cost of effort is MC = 2H.Without any effort,the salesperson will,on average,generate a profit of $1,200.With each hour of high effort,he has a 5 percent chance of selling a car.Each car sale generates a profit of $900.Which of the following is an incentive scheme that leads to the efficient effort level and allows the owner to keep all of the surplus?

Suppose all workers in a certain labor market are of either high quality or low quality.Potential employers value a high-quality worker at $15,000 per month and a low-quality worker at $7,500 per month.The monthly supply of high-quality workers is Q^s_H = 0.04(W - 1,500)and the supply of low-quality workers is Q^s_L = 0.08(W - 1,500),where W is the monthly wage.If workers' abilities are not observable to employers,how many workers of each type do employers hire?