Q1) Consider the model of investment under asymmetric information in Section 10.2 of the reading….
Q1) Consider the model of investment under asymmetric information in Section 10.2 of the reading. Suppose that initially the entrepreneur is undertaking the project, and that (1 + r)(1- W) is strictly less than RMAX. Describe how each of the following affects D: (a) A small increase in W . (b) A small increase in r. (c) A small increase in c. (d) Instead of being distributed uniformly on [0, 2?], the output of the project isdistributed uniformly on[? – b, ? + b], and there is a small increase in b. (e) Instead of being distributed uniformly on [0, 2?], the output of the project is distributed uniformly on [b, 2? + b], and there is a small increase in b.
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