A rm is looking to hire workers for their widget factory in a perfectly competitive market. Workers have ability 0 e [0, 4] and an
A rm is looking to hire workers for their widget factory in a perfectly competitive market. Workers have ability 0 e [0, 4] and an outside Option r09) 3 0. Assume that t?) is increasing in 6. The rm's prot is 7r = E[9|'r(6) 5 w] w. (a) If the worker's ability were perfectly observable to the rm, what would it offer to the workers? (b) Suppose the worker's ability is unobservable to the rm and the rm is restricted to offer a single wage to all workers. Let there be a training cost for the worker equal to %, then the prot from hiring a worker for the rm is 7r = E[6|r(6) s w] w 110. The conditional expectation is E[6|'r(6') S w] = 5 f4 =|= w 1/10 =I= 1.02. Find the equilibrium wage, to". (c) Is employment in the asymmetric information case efcient? Explain your answer clearly and precisely
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance