Economics Stack Exchange is a question and answer site for professional and academic economists and analysts. Join them; it only takes a minute:

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

I've been trying to solve this question for a couple of days and I'm having no success.

The only part I remotely have an idea about is part (i), where I think I would integrate the IR constraint between 1 and 0 with respect to D. After which, differentiate it with respect to w and solve? With this method, however, I lose all the D terms so cannot find w in terms of D, P and beta as asked.

The question is a principal-agent problem with the agent being able to observe the state of the world and then decide upon an effort level. The first part of the question asks to find the level of effort that the manager will put forward. The second part asks for the constant payment that the principal offers the agent.

Any help is much appreciated. enter image description here

share|improve this question
Please include some information about the question in the body of the text because images are not searchable, making the question less accessible to future users. Until such an edit is made the question is off topic. – denesp May 5 at 9:42
@denesp is that satisfactory? – user337166 May 5 at 11:33

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Browse other questions tagged or ask your own question.