Problems To Macroeconomy

Solution Keys to Problem Set 3 Question 1: (1%) engage the auspicateing model introduced in the class and slack up the boldness that direction yet serves as a smooth signal, presumptuous that education can improve productivity. In this case, a actors productivity is ?(1 + e). What be the separating and pooling perfect Bayesian Equilibria in this case? How would them differ from those derived under the assumption that education is only a pure signal? This question asks you to view the note value of education, both as a signal of quality and as a way of improving productivity. let ?H and ?L denote the part of workers, where ?H > ?L > 0, and ? = Pr? = ?H ), and e for the direct of education. (? Let us first consider the first-best case when asymmetric information is absent. In this case, the employer can short distinguish the high casing workers (?H ) from the low type workers (?L ). Therefore, wages will be equal to workers various(prenominal) productivity in a war-ridden labyrinthine sense, i.e. wH = ?H + ?H eH and wL = ?L + ?L eL . The abutting question is what is the best level of education for each type of worker in equilibrium? The workers will only distinguish to take trusted level of education which increases their return. Let the utility be u = w ? c(e, ?). The F.O.C. is we = ce = ?.

Therefore, the optimal level of education e* is defined as cei? = ?i , i = H, L. Graphic all toldy, first of all, we take on to mystify lawful lines to denote the range of wages, according to wH = ?H + ?H eH and wL = ?L + ?L eL . The wages in whatever employment contract cannot go beyond these devil straight lines. Second, since there is no asymme tric information, workers will maximize thei! r utility, i.e. their stolidness curves should be tangent to these straight lines. This competitive equilibrium is a separating equilibrium under perfect information. Are all competitive equilibria sustainable when there is asymmetric information? When they are not sustainable, what changes need to be made to reach...If you want to bump a full essay, order it on our website: OrderEssay.net

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