Consider the signaling model of Spence analyzed: The worker's productivity increases with education so that it is
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e. The worker's cost of obtaining e is e/2 if he is of a high type while it is e if he is of a low type. The worker's outside option value is 1.6 for a high type and 0.6 for a low type. Answer the following questions assuming that the worker's type, which is high with probability lambda = (0,1/2), is private information. Describe the set of all separating equilibria when the education opportunity is present. Apply the Intuitive Criterion and identify the separating equilibrium that
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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