Universitat Pompeu Fabra, 1998/1999
Due October 28, 1998
The midterm exam is scheduled for October 28, 1998, 13:30.
1. Consider the problem of rationing in a credit market. Instead of assuming that the bank can't get anything in case the project fails, assume that it may have the apartment of the firm's manager as a collateral. The apartment's value is C.
2. Consider the problem of moral hazard with the following modification: The agent is choosing two continuous effort variables e1, e2. The principal is risk neutral. The agent is risk averse and has the expected utility function EUA=E(w)-(1/2)Var(w)-v(e1,e2). His reservation utility level is zero. The firm's sales of two variables (x1, x2) are proportional to the effort levels: x1=A×e1+H1; x2=B×e2+H2, where A, B are two different constants and H1, H2 are random variables with mean equal zero and variance equal 1. H1 and H2 are correlated and their covariance Cov(x,y) is equal to R12.
3. In most countries unemployment insurance payments decrease the longer the unemployment period is.
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