stochastic noise Archives

Find the optimal contract designed by the principal, the total welfare (i.e., the total certainty equivalent wealth) generated by the optimal contract, and the expected utility (i.e., the certainty equivalent wealth) gained by each of the two parties. Provide detailed motivation and comments at all steps of your analytical answer.

By DanielPosted on January 16, 2021Posted in Math/Physic/Economic/Statistic ProblemsTagged assignmenthelp, collegeessays, essayhelp, principal-agent, stochastic noise, variance

1. Consider a principal-agent relationship where agent’s effort, e, is not observable by the Principal, and hence it is not contractible. Agent’s output, z, is however contractible. Agent’s output is linked to agent’s effort by the following relationship: z = e + x, where x is a stochastic noise with E(x) = 0 and Var(x) […]