Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I. (30 marks total) Consider a modification of the search and matching model of the labour market from LN2. In that model, we as;umed

image text in transcribed

image text in transcribed

I. (30 marks total) Consider a modification of the search and matching model of the labour market from LN2. In that model, we as;umed that all firms were identical. Suppose instead that firms differ in how much they have to pay to search for a worker. That is, let's index the firms by j E [O, m) (i.e., j can take on any real number between O and m), and suppose that firm j must pay search cost k(j), where k() is a continuous and strictly increasing function (i.e V (j) > O) with k(O) O and k(j) x. In every other respect, the model set-up is the same. (a) (2 marks) Draw a decision tree showing firm j's payoff structure (analogous to Figure I(b) from LN2). (b) (3 marks) Consider a match between a worker and firm j. Given the wage w in this match, determine the value of firm j's surplus Sf(j). How dews depend on j? Explain your answer intuitively. (c) (4 marks) The worker's surplus in the match from (b) is given as usual by sw b. The total surplus in the match is then s(j) + Sf(j). Assuming Nash bargaining where the worker receives share of the total surplus in the match, solve for the Nash wage in this match. How does it depend on j? Explain your answer intuitively.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Economics Theory Applications and Cases

Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield

8th edition

978-0393124491, 393124495, 978-0039391277, 393912779, 978-0393912777

More Books

Students also viewed these Economics questions

Question

What can any retailer learn from this case? Explain.

Answered: 1 week ago

Question

What was the positive value of Max Weber's model of "bureaucracy?"

Answered: 1 week ago

Question

3. What is my goal?

Answered: 1 week ago

Question

2. I try to be as logical as possible

Answered: 1 week ago