If we define a as effective effort, the parameter b2 can capture the tastes and
the productivity of the manager. For example, suppose that managers care about
the number of hours they work and that h hours input by a manager of calibre w
yields effective effort ashw. Then bX
h2 is the cost of h hours and b a 2 2 2s
Ž X 2 . 2 b rw a is the cost of effective effort where b reflects both the manager’s 2 2
Ž X preferences b . Ž.