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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 Spring '10
 natalia
 Dynamic Programming, Recursion, Utility, Convex function, Bellman equation, Bellman, Natalia Kovrijnykh

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