QUESTION 1

1.You are a hiring manager at a large publicly traded firm.

You are wondering whether to invite or not 4 candidates to visit the Company headquarters for a day-long interview. You have the following information:

With probability 50% candidate will yield $350'000 in sales

With probability 25% candidate will yield $250'000 in sales

With probability 25% candidate will yield $100'000 in sales

Posted wage is $200'000

A benefit of the visits is that it will allow you to identify the weakest candidate (i.e. the candidate that will yield 100'000 in sales).

The maximum cost of the visit (per worker) that you are willing to sustain is

QUESTION 2

1.You are a hiring manager at a large publicly traded firm.

You are wondering whether to invite or not 4 candidates to visit the Company headquarters for a day-long interview. You have the following information:

With probability 50% candidate will yield $350'000 in sales

With probability 25% candidate will yield $250'000 in sales

With probability 25% candidate will yield $100'000 in sales

Posted wage is $200'000

A the benefit of the visits is that it will allow you to exactly identify the 2 strongest candidates (i.e. the candidates that will yield 350'000 in sales). If the visit cost is 30000 per worker, do you authorize the headquarter interviews or not?

Answer:

Yes/No

How about if the cost per visit was 20000?\

Answer:

Yes/No

QUESTION 3

1.You are a hiring manager, and you are designing a job posting for your next hire. The contract that you offer features:

1 year probationary period

10 extra years(Offered conditional on good performance during probationary period)

Opt or Out

The likelihood that a good candidate will get retained after the probationary period is 80%, while the probability that a bad candidate will get offered retention is 5%.

A good candidate has a per-year outside option of $100'000; a bad candidate has a per-year outside option of $70'000.

Which of the following three options allows for an effective screening of candidates?

Option 1

w1= $120'000

w2=w3=...=w11=$185'000

Option 2

w1= $35'000

w2=w3=...=w11=$135'000

Option 3

w1= $135'000

w2=w3=...=w11=$35'000

QUESTION 4

1.Consider the same problem as Question 3.

Now suppose that the probability of retention for a good candidate is 10%. Which option would you chose?

Now suppose that the probability of retention for a good candidate is 20%. Which option would you chose?

10 points

QUESTION 5

1.You are a hiring manager at an accounting firm. You would like to hire a new employee to work with some very large and important new clients that just had a merger and acquisition transaction for the next 5 years. A CPA certification is not really required for this specific job, but you think that offeringto offer a salary premium for candidates with such certification may help good candidates to signal their quality.

The contract has the following structure

Salary for CPA-certified accountants: $105'000

Salary for non-CPA certified accountants: $75'000

The outside option at other firms is a salary of $70'000 per year. The cost for the acquisition of a CPA certification is $15'000 for a good candidate, $23'000 for a bad one.

Will a bad worker get a CPA certification and apply for the position?

Will a good worker get a CPA certification and apply for the position?

Suppose now that you offer $83000 for candidates without a CPA certificate. Will a bad worker get a CPA certification and apply for the position?