Pablo
is a legitimate and hardworking entrepreneur from Medellín, Colombia.
He produces and sells fluor for a living. Unfortunately, a producer from
Cali decided to expand into Pablo's city. As a consequence, he is considering hiring someone to get rid of the competition (in a totally friendly way, of course, since Pablo is an upstanding citizen). Let the (non-negative) variables q and p represent the quality of the service
(which is linked to the likelihood of eliminating the competition) and the respective payment, while a and b are unknown parameters that range between 0 and 20. Pablo's utility function is given by ,
whereas the utility function of the person he is considering to hire
can be either or , with both scenarios being
equally likely. Both types have a reservation utility of 0. Which of the following statements is/are TRUE :

Question

Pablo
 is a legitimate and hardworking entrepreneur from Medellín, Colombia. 
He produces and sells fluor for a living. Unfortunately, a producer from
 Cali decided to expand into Pablo's city. As a consequence, he is considering hiring someone to get rid of the competition (in a totally friendly way, of course, since Pablo is an upstanding citizen). Let the (non-negative) variables  q  and  p  represent the quality of the service 
(which is linked to the likelihood of eliminating the competition) and the respective payment, while  a  and  b  are unknown parameters that range between 0 and 20. Pablo's utility function is given by   ,
 whereas the utility function of the person he is considering to hire 
can be either    or   , with both scenarios being 
equally likely. Both types have a reservation utility of 0. Which of the following statements is/are  TRUE :

Answer

Assume a=5 and b=8. If types are observable, the Incentive Compatibility constraint for a "type a" person is binding.

Answer

Assume a=10 and b=5. If Pablo is unsure about the type of person he has in front of him, the Incentive Compatibility constraint for a "type a" person is binding.

Answer

Assume a=5 and b=8. If Pablo is unsure about the type of person he has in front of him, the Incentive Compatibility constraint for a "type a" person is binding.

Answer

Assume a=10 and assume nothing about b. If you are told that, in the presence of
information asymmetry, offering the optimal contracts only allows "type   b" to reach an
agreement with Pablo (i.e.   ) the maximum value b can take is 5.

Answer

Assume a=5 and b=8. If Pablo is unsure about the type of person he has in front of him, he will offer contracts with an optimal value for    lower than

Answer

Assume a=5 and b=8. Pablo would offer the same payment to a "type a" person if types were observable or unobservable.

Crowdly

Pablo is a legitimate and hardworking entrepreneur from Medellín, Colombia. H...

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