home2m - y be 10000 y for H workers and 15000 y for L...

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Homework 2 1. Problems 1 and 2 on p. 279 in the textbook. Explain the adverse selection in these problems. Explain why the bank can gain by rationing credit in these problems. (Make any additional assumptions you need). 2. Suppose that perfectly competitive employers hire two groups of workers: able with productivity $60000 and the unable with productivity $30000. These groups have equal size. Let the cost of education
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Unformatted text preview: y be 10000 · y for H workers, and 15000 · y for L workers. (a) Describe the wages the workers will receive if their ability is known to the employers. (b) Suppose that the ability is not known to the employers, but can be signalled through education. Describe all the separating equilibria, and compare them in terms of welfare for both types of workers. (c) Give an example of a pooling equilibrium....
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This note was uploaded on 09/12/2009 for the course ECON 62240 taught by Professor Safarzadeh during the Spring '09 term at UC Irvine.

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