QUESTION (5) Job market signaling game: First, Nature chooses the type of the worker to be either the high productivity type, H , or the low productivity type, L. The worker observes his type but the employer does not observe the worker's type. The worker, after learning his own type, decides whether to get education high level of education, e, , or low level of education, e̟. The cost of the education is 4 for the high type worker and 7 for the low type worker. Once the education choice is made, the employer observes this and has to decide to which position the worker should be assigned. The possible positions are either a manager, manager , or a clerk, clerk . The wage of a manager is 10 and that of a clerk is 4. If the high type worker is assigned as a manager profit of 10. However, if the low type worker becomes a manager, the profit for the firm will be zero. Both types of workers will be able to equally contribute at the clerical position by 4. (a) Draw the extensive form presentation of this game with relevant payoffs. Can there exist a separating Perfect Bayesian equilibrium? If yes, characterize the equilibrium and state the conditions needed for its existence. If not, argue why it cannot exist. (b) Can there exist a pooling Bayesian equilibrium? If yes, characterize the equilibrium and state the conditions needed for its existence. If not, argue why it cannot exist. (c)
QUESTION (5) Job market signaling game: First, Nature chooses the type of the worker to be either the high productivity type, H , or the low productivity type, L. The worker observes his type but the employer does not observe the worker's type. The worker, after learning his own type, decides whether to get education high level of education, e, , or low level of education, e̟. The cost of the education is 4 for the high type worker and 7 for the low type worker. Once the education choice is made, the employer observes this and has to decide to which position the worker should be assigned. The possible positions are either a manager, manager , or a clerk, clerk . The wage of a manager is 10 and that of a clerk is 4. If the high type worker is assigned as a manager profit of 10. However, if the low type worker becomes a manager, the profit for the firm will be zero. Both types of workers will be able to equally contribute at the clerical position by 4. (a) Draw the extensive form presentation of this game with relevant payoffs. Can there exist a separating Perfect Bayesian equilibrium? If yes, characterize the equilibrium and state the conditions needed for its existence. If not, argue why it cannot exist. (b) Can there exist a pooling Bayesian equilibrium? If yes, characterize the equilibrium and state the conditions needed for its existence. If not, argue why it cannot exist. (c)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:QUESTION (5) Job market signaling game: First, Nature chooses the type of the worker to be either the high
productivity type, H , or the low productivity type, L. The worker observes his type but the employer does not observe the
worker's type. The worker, after learning his own type, decides whether to get education high level of education, e, , or low
level of education, e. The cost of the education is 4 for the high type worker and 7 for the low type worker. Once the
education choice is made, the employer observes this and has to decide to which position the worker should be assigned. The
possible positions are either a manager, manager , or a clerk, clerk . The wage of a manager is 10 and that of a clerk is 4. If
the high type worker is assigned as a manager profit of 10. However, if the low type worker becomes a manager, the profit for
the firm will be zero. Both types of workers will be able to equally contribute at the clerical position by 4.
(a)
Draw the extensive form presentation of this game with relevant payoffs.
(b)
Can there exist a separating Perfect Bayesian equilibrium? If yes, characterize the equilibrium and state the
conditions needed for its existence. If not, argue why it cannot exist.
(c)
Can there exist a pooling Bayesian equilibrium? If yes, characterize the equilibrium and state the conditions needed
for its existence. If not, argue why it cannot exist.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education