Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assume now that the firm cannot distinguish and ascertain the quality of a job applicant. This corresponds to Birgitte Sloths model with asymmetric information
Assume now that the firm cannot distinguish and ascertain the quality of a job applicant. This corresponds to Birgitte Sloths model with asymmetric information (sections 2.2 2.3). As in her model, we assume that r H > r L, and ril < pyH , but this time we assume, contrary to her wsumptions, that L-type is profitable at his/her reservation wage rL < pyL. Suppose furthermore the worker types have additional costs, bli and b}, re- spectively, ssociated with making an extra (signalling) effort. (b) Make the additional assumptions + by pyH and rn -F bn + bL. What do these assumptions imply? (c) Using the assumptions above (including the ones made in b) determi- ne which wage policy is optimal depending on the various parameters, including bil and bL?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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
Get Started