{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ps5macro2sp08

# ps5macro2sp08 - Econ 387L Macro II Spring 2008 University...

This preview shows pages 1–2. Sign up to view the full content.

Econ 387L: Macro II Spring 2008, University of Texas Instructor: Dean Corbae Problem Set #5- Due 2/26/08 1. Consider the following search model. A worker who is employed begins each period with a wage w. The worker can either work at that wage or search and receive unemployment bene fi ts b in the current period. If the worker chooses to work, he is employed at wage w in the following period with probability δ and unemployed with probability 1 δ. An unemployed worker who searches receives a wage offer from a distribution F ( w ) at the end of the period (so that if he accepts a particular offer e w , he would begin the next period employed at wage w 0 = e w ) . Wage offers are i.i.d. over time. The worker’s preferences are P t =0 β t u ( c t ) where c t denotes consumption, u ( · ) is an increasing function, and β < 1 . Assume no borrowing or lending. a. Set up the worker’s decision problem as a dynamic program. b. Show that the solution to the worker’s problem is of the reservation wage form (i.e. that there exists a wage w such that for all draws w w the worker accepts and continues to search otherwise). Characterize the reservation wage. In particular, prove that

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern