a. You are the manager of a logistic company. The profit of yourcompany depends on the number of parcels delivered in an hour. Youcannot directly monitor the drivers who help transport parcels,however. You are now considering two possible payment schemes tothe drivers. Scheme A: a fixed hourly wage. Scheme B: a fixedpayment on parcels transported in an hour. i. Which scheme wouldyou suggest to your CEO? Briefly explain your answer. ii. Can yousuggest a possible scheme that is better than Schemes A & B?Briefly explain your suggestion. b. The 2008 Global FinancialCrisis hit the Chinese economy staggeringly and adversely. Thesmall and medium-sized enterprises (SMEs) in China were underimminent threat. In response to this crisis and to help SMEs inparticular, the People’s bank of China (the Chinese central bank)launched an expansionary monetary policy in large scale. Owing tothis policy, the growth rate of credit shot up. However, it wasfound that most of the credit went to the large companies insteadof the SMEs in China. Why Chinese banks prefer making loans tolarge Chinese companies rather than to Chinese SMEs? Brieflyexplain your answer based on asymmetric information in thefinancial market.
