MGEC58H3 Final: Problem Set 3
13 Dec 2018
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Problem set 3 deferred compensation: ben has just started a job at big boys management consulting, inc. He will stay there for exactly 5 years unless he is fired for shirking his duties. His productivity (in thousands of dollars) in each year he stays at big boys is given in column (2) of the spreadsheet below, and his wage at big boys is given by columns (3) and (4). Boys is to dismiss employees who are discovered shirking their duties. Shirking gives ben an instant boost of utility worth 100 (thousand) dollars to him. If ben shirks, he gets this utility boost, but is immediately detected and fired; he then works at another, alternative job, where his wages are given by the column (5) of the spreadsheet. Verify that, over the same period, the firm would just break even on employing ben under either profile if he didn"t shirk.
