ECO370Y5 Study Guide - Final Guide: Nash Equilibrium, The Seller, Risk Neutral
Document Summary
Please email gegorov@fas. harvard. edu with any questions, comments, or suggestions: multi-task and incomplete contracts. Consider the relationship between a shipper s and a trucker t . S hires t to carry a load from boston to chicago. When t arrives in chicago, s will have another load (the (cid:147)back-haul(cid:148)) whose characteristics cannot be speci(cid:133)ed in a contract in advance. The value of this load is v. while driving from boston to chicago, t can engage in two activities: she can search for an alternative back-haul, and she can look after the truck. Alternative back-hauls have value v2 with probability p and v1 with probability 1 (cid:0) p, where v2 > v > v1, and v2 (cid:0) v1 < 1. The probability p is a choice variable for the trucker and the e ort cost of p is p2=2. The value of the truck, a, is also a choice variable for the trucker and the e ort cost of a is (cid:21)a2=2.
