A state government hired a contractor for a road-construction project. The contractor's type, its cost efficienciency, is unknown to the government. There is 2/3 probability of the its construction cost being 3 (billion dollars per lane) and 1/3 probability of the cost being 5. More lanes yield more social benefit in the form of faster travel and fewer accidents. The social value V (measured in billions of dollars) from having N lanes on the highway is: V-15N-N?2. The government is interested in choose N and writing a contract to maximize the benefit to the state (V) net of the fee paid to the contractor (call it F): G-V-F. Your goal as a government official is to design a pair of contracts to separate the types of contractor. You want the contractor to choose "Contract L: Build N lanes and get paid RL dollars" if its cost type is low cost of $3 (billion dollars per lane) and to choose "Contract H: Build NH lanes and get paid RH dollars" if its cost type is high cost $5 (billion dollars per lane). Your analysis concludes that the optimal contract is "Contract L: Build lanes and get paid billion dollars" and "Contract H: Build lanes and get paid billion dollars."

A state government hired a contractor for a road-construction project. The contractor's type, its cost efficienciency, is unknown to the government. There is 2/3 probability of the its construction cost being 3 (billion dollars per lane) and 1/3 probability of the cost being 5. More lanes yield more social benefit in the form of faster travel and fewer accidents. The social value V (measured in billions of dollars) from having N lanes on the highway is: V-15N-N?2. The government is interested in choose N and writing a contract to maximize the benefit to the state (V) net of the fee paid to the contractor (call it F): G-V-F. Your goal as a government official is to design a pair of contracts to separate the types of contractor. You want the contractor to choose "Contract L: Build N lanes and get paid RL dollars" if its cost type is low cost of $3 (billion dollars per lane) and to choose "Contract H: Build NH lanes and get paid RH dollars" if its cost type is high cost $5 (billion dollars per lane). Your analysis concludes that the optimal contract is "Contract L: Build lanes and get paid billion dollars" and "Contract H: Build lanes and get paid billion dollars."

Name: A state government hired a contractor for a road-construction project
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Description: A state government hired a contractor for a road-construction project. The contractor's type, its cost efficienciency, is unknown tothe government. There is 2/3 probability of the its construction cost being 3 (billion dollars per lane) and 1/3 prob

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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