PS3 - ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 3...

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ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 3: Due on Friday, February 19, by 3 p.m. in my mailbox (100 points total) 1. [15 points] Consider the basic search model that we studied in class (linear utility, no while unemployed, the worker can draw two i.i.d. wage o/ers from the distribution F ( w ) . The o/ers are drawn simultaneously, after which the worker has to decide whether to accept one of the jobs or reject both. Once employed at wage w , the worker receives it forever. A b v ( w ) as the value a currently unemployed worker who has best o/er w in hand. (a) Formulate the Bellman equation for the worker±s problem. (b) Show that the worker±s reservation wage is higher than if the worker could draw only one wage o/er. 2. [20 points] Consider the basic search model that we studied in class with the following
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PS3 - ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 3...

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