Consider a competitive economy that has four different jobs that vary by their wage and risk level. The table below describes each of the four jobs.

All workers are equally productive, but workers vary in their preferences. Consider a worker who values his wage and the risk level according to the following utility function:

Where does the worker choose to work? Suppose the government regulated the workplace and required all jobs to have a risk factor of 1/5 (that is, all jobs become A jobs). What wage would the worker now need to earn in the A job to be equally happy following the regulation?

Transcribed Image Text:

Job Risk () Wage () 1/5 1/4 1/3 1/2 S3 S12 S23 S25