You consider setting a 1-year-long probationary period, which you believe will be enough to find out which type each manager belongs to. After that, you plan to fire dumb managers and keep smart ones. For simplicity, let's assume that if someone turns out to be smart, you will keep her infinitely. The rate of discounting the future remains at 10 percent a year. You want to devise such terms of employment that would make only smart applicants apply. Currently, you are considering the following scheme: You pay $14,000 during the first (probation) year, after which you fire dumb managers, keep smart ones, and pay them $28,000 a year ever after.. If you adopt the scheme proposed above, will smart people apply?

Explain why or why not.If you pay $14,000 during the first year, then how high does the post-probationary salary have to be in order to make smart managers interested in the position?

Answer rating: 100% (QA)

To determine whether smart people will apply under the proposed scheme we need to analyze the presen... View the full answer