Your company wants to hire several workers on one-year contracts for its process improvement projects. The company has 2 job categories: experts are paid $70,000 annually and associates are paid $60,000 annually. You know that applicants for these jobs fall into 3 categories: one third are talented, one third are good, and one third are merely adequate. Talented workers could easily get a job elsewhere paying $48,000 annually; good workers could get paid $46,000; and adequate workers could get paid $44,000. Each applicant knows which category they fall into, but the company does not. Consequently, your company plans to specify a prerequisite requirement for the employees they hire. One alternative is to require applicants to be professionally certified as a green belt in quality improvement. To obtain a green belt, a talented applicant needs to spend time and effort equivalent to a $5,000 cost. Good applicants must work harder to get certified; their cost would be $9,000. Similarly, adequate applicants would face a certification cost of $13,000. The other alternative is to require applicants to have completed several improvement projects, as documented by previous employers. Completing each project costs a talented applicant $900 in overtime and stress. By comparison, each project costs $2,100 for a good applicant and $3,400 for an adequate applicant. Your company primarily wants to hire the best applicants available for each job type, but it also wants to minimize the potential cost and stress for the applicants.

Questions Treat this situation as a sequential-move game. The company moves first by specifying the prerequisites that applicants must meet. Applicants move second by choosing whether to apply for a job and which category to apply for. 1. Suppose your company offers to hire certified green belts as experts and everyone else as associates. Which categories of workers would apply for each job type? (Hint: You might be able to figure out the solution without creating a formal model; in that case, explain your reasoning. If you do model the situation formally, you will need 3 PCs and 3 ICCs, but no DV.)