Game 7: A mechanism design (principal agent) problem
In this timed game, you are the owner of a large pharmaceutical company looking to subcontract
out a number of research projects, each with uncertain outcome, to outside R&D facilities. Each
research facility, once hired, can choose either to put in routine effort (assign a normal staff to the
project) or high effort (assigning its best researchers). Its choice will affect how likely the project
is to succeed and earn a profit. You cannot monitor a facility's effort directly; all that you know is
whether or not its project succeeds. You must offer all research facilities the same offer consisting
of a base salary and bonus if the project is a success. What salary and bonus do you wish to
offer?
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