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. Question 5 (8 marks) Consider the following workplace...
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Question 5 [3 marks! Consider the following workplace situation. A boss can implement an incentive scheme {1} or
not {N1}. Following observing this a worker can work hard [H] or slack [S]. The payoffs are as
follows. [fl and H are chosen by the boss and worker, respectively, the payoffs are 25 to the
boss and 9 to the worker. In is chosen by the boss, then L by the worker the payoffs are 12 to the boss and 5 to the worker. If the choices are NI then H, the returns are 3!] and T to the boss and worker respectively. }'inally following N[ and L the payoffs are I? {boss} and 1 ] {worker} at) Ell-hat is the subgame equilibrium of the game? Explain your answer in the context of
the principal-agent incentive contracts. (.17 marks) b} Now assume that the worker, through their union workplace agreement has a veto right on any incentive scheme, and there is no incentive scheme currently in place. The boss -..;,4|5 and the worker can negotiate to allow for incentive scheme to be legally implemented
{and compensationfside payments can be made as part of this agreement}. If the worker
has all ofthe bargaining power during these negotiations, will the incentive scheme be
implemented? Is the outcome surplus-maximising? Explain your answer in the context ofthe value-maximisation principle? ['5 mar-alts}
Answer & Explanation
Solved by verified expertAnswered by sanchit208sethii on coursehero.com
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