Entrepfl-3000* “WV ° 9 maximising level of wort?

SECTION A

ANSWER THE QUESTIONS IN THIS SECTIO
in min
1. a. Under what circumstances would an entrepfl-3000* “WV ° 9
maximising level of wort?
arket allows an
b. Explain how the presence cl‘ an enttoP’°”°““3? Wm ‘” . V
individual to separate the decision 0! how much effort should be used In the” WT”
from how much etlort they supply themselves.

2. Suppose that you own a company and you want 8 M80899’ *0 “‘3’“””5° P’°ms
on your behalf. Explain how your choice of emptoyment contract would vary
depending on wltetheror not etlort could be observed and whether or not the impact
at effort on output was attain. _ ( 4/3)
qmur V3-)3) ‘0 QIWV F5

3. a. Explain what is meant by full and tear insurance-
b. Explain why low risk andltigh risk individuals cannot be altered hill and fair
insurance ti the insurance companies cannot tell how risky an individual is.
c. When wil an equilibrium exist under asymmetric information?

 
SECTION B
ANSWER WANSEWER AT LEAST ONE QUESTION FROM THIS SECTION
QUESTIONS IN THIS SECTtON IN A SEPARATE ANSWER BOOK
4’ E”.pH” “W “°393I’chers have used experiments to try to test the lndeP9?°°”C”
mom °’ E”9°°‘9d Utility Theory (EUT) and discuss the main aIlemattve(s) to
EUT which relax the independence axiom. Pay particular attention to the
following:

5‘ BN8? dearty what the independence axiom entails. [20 m3’*8l

5- Describe the design at at least one experiment that has been used to 1081
‘”9 Wfienenderloe axiom and explain how it provides a test – that is. how
‘”9 ‘W3 Qenerated might be used to draw conclusions about the vaiitfify
or the independence axiom. [40 marks]

C. Describeatleestonedecisiontheorywhichallowslorvlotetionolthe
independence axiom Explain how this theory can explain the
experimental results which you have described in (ta) above.

[40 marks]
5. Answer the Iotlawing questions about the willingness to eooeptlwilingness to pay
(WTAIWTP) disparity.

a. Explain why the WTNWTP disparity is regarded as an ‘anomaly tor
Hiolcelen consumer theory. [25 marks]

b. With the aid of diagrams and showing knowledge at the relevant
literature. ilustrate how Cumulative Prospect Theory explains this
anomaty. [75 marks]

6. Answer the following ouesttons about field and natural experiments.

a. How are field experiments dessitied by Harrison and List (2004)?
Providedetiiitionsoteechtypealtieldexperlrnenteooordtng tothis
classification and ewleln why the dasslfioetion proposed by Harrison
and List (2004) is not aooepted by al researchers In experimental
e%fbmi§.

ta. Extfilifi ;

(ll using a tletd experiment [10 mm
(ll) who a natural experiment [10 marks:
c. Whetare ttteedveltllnenliddieadvantegggot mg
9 Games shown on
rv tor testlnc Iheorleuotdecleion making? [30 mm]