Consider a principal-agent scenario in which the instructor is the principal and the students are agents. Suppose the principal is interested in maximising a measure called "learning', which is costly for the students. Further suppose that the instructor is "mean, ie. he doesn't like to give
out marks. (a) Suppose "learning" is not observable, but is perfectly measurable by a variable that is
observable: "class attendance". What can the instructor do to incentivise learning? (b) Realistically, "learning" is not observable, but "class attendance" (while being observable) isn't a very good measure of "learning". Name one behavior that 1) is rewarded by incentivising
attendance and 2) the principal does not care about. (c) Name one behavior that contributes to "learning" that is not "captured" by a performance measure
linked to attendance. (d) We assumed that giving out marks is somehow "costly" for the instructor. Explain how the
analysis in a-c changes if it is not.