Question
A competitive firm faces two types of potential employees: low (L) and high (H) productivity employees. A potential employee's type is private information known to
A competitive firm faces two types of potential employees: low (L) and high (H) productivity employees. A potential employee's type is private information known to the potential employee only. The marginal revenue product and hence wage of an employee known to be L is 16, and the marginal revenue product and hence wage of an employee known to be H is 160.
The utility functions of the two types of employees are given by
: (,) = 92
: (,) = 2
where w is the wage the employee gets and e is the amount of education chosen by an employee.
Construct the signaling game tree of the problem.
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