Wednesday, October 30, 2013

Principal-Agent Excel Homework

The homework is now available.  It is due the evening of November 6.  We will go over it in class the next day.

If you have questions about this homework you can post them as comments to this post.

If you find typos, please let me know about them.  I proofed it once, but I usually take longer to make these.  In this case, I wanted to make it available too you.

And if you finds errors, I'm sure I would have heard from you anyway, without the reminder.

13 comments:

  1. I'm having trouble finding the value of WH on the indifference curve. WL=5000 Is the correct formula
    WH= u^-1([u~-pu(wL)]/(1-p))?

    If so I'm not sure why I am not getting the correct answer.

    I also know that u^-1(x) is just x^(1/alpha)

    ReplyDelete
  2. Since we discussed after class, let me just say the following for others. The value for p to use is either p(0) in the low effort case or p(e) in the high effort case. Also may sure that you are entering in utility levels, not income levels for what is inside the square brackets in the formula.

    ReplyDelete
  3. For the high effort why isnt the equation where its ((u-p(e)*Wl^alpha)/(1-P(e)))^1/alpha and for the wl value for the low effort it was just u^(1/alpha) isnt the same for the high effort?

    ReplyDelete
  4. In the high effort case you have have to compensate for the disutility of effort. So where you have written u above, you should instead have u + e.

    ReplyDelete
    Replies
    1. thanks professor, that makes much more since now

      Delete
  5. Not sure whether anyone else is having this problem but when I try to do the two questions after the question about the WL intercept, I get my numerical values automatically turned into date values. I can't reformat the cells to change it back from dates to numbers (the formatting is locked). So I can't proceed further because every time I try to enter a numerical value (starting with '='), it gives me a date such as Jan-00 or Sep-13 or something

    ReplyDelete
    Replies
    1. Somebody reported the same problem on the previous homework. i don't believe it is a problem with the spreadsheet itself. In any event, try the following. Right click in the cell where the issue crops up. Then choose Format Cells. When the Dialog Box appears choose the Number tab. If Date is highlighted, change that to Number. You can set the decimal places to 2. That last part doesn't really matter, it is just for appearance.

      Delete
  6. I have been working on this first part for a while and think I am just missing something really easy.
    For trying to find Wh and WL...
    I subsituted WH for WL but got a divide by 0 error
    my equation was then WL=constant/((1-p)*slope+p)
    Is there something I am missing?

    ReplyDelete
  7. If you are talking about the questions on lines 58 and 59 of the assignment, you are making it too hard. The intercept happens when the equation is satisfied, so expected expenditure equals the constant, and the value of the other variable is 0. So for the wL intercept, wH = 0 and then wL = constant/p. Likewise for the wH intercept, wL = 0, and then wH = constant/(1-p).

    ReplyDelete
  8. I have been trying to figure out the value of WH for quiet awhile now and I cannot seem to get the right answer. I've tried the equation given in the homework as well as suggestions on the discussion board but I cannot get the right answer. I we use the equation WH= u^-1([u~-pu(wL)]/(1-p)), U,WL are both given to us. So the p in this case we us is P(e). Am I missing something? it seems pretty straight forward but I cannot get the right answer.

    ReplyDelete
    Replies
    1. If this is for the case with high effort then what you are missing is adding in the effort cost. The utility should be ubar + e, not just ubar.

      Delete
  9. I am having a hard time figuring out what u~ is supposed to be for the wH equation.

    ReplyDelete