BPP Field Exam 2007 Answers

C.2: Contracting with and without commitment

C2 (a)

The solution is given by [math]\max_{t_{H},t_{L},q_{H},q_{L}}[\sum_{i=0}^{\infty}[\delta^{i}(0.5(u(q_{H})-t_{H})+0.5(u(q_{L})-t_{L}))]][/math]

C2 (b)

C2 (c)

C2 (d)

C2 (e)