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Assume now that the firm cannot distinguish and ascertain the quality of a job applicant. This corresponds to Birgitte Sloths model with asymmetric information

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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?

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