Question

Suppose that education does not increase an individual's marginal productivity and that there are two types of people in the world: over-achievers and slackers. Over-achievers don't really mind going to school and for them the cost of e years of school is 0.5*e. Slackers, on the other hand find school more burdensome, and for them the cost of e years of school is e Consider two different firms. Firm 1 offers to pay workers such that the present discounted value of their lifetime earnings is $12 if workers have at least 6 years of schooling, and $8 to all other workers. Firm 2 offers to pay workers such that the present discounted value of their lifetime earnings is $12 if workers have at least 2 years of schooling, and $8 to all other workers a. For each firm separately, analyze whether its educational requirements will enable them to distinguish between over-achievers and slackers b. What is the minimum educational requirement a firm can offer and still expect to be able to distinguish between over-achievers and slackers?

Answer 1

Sabyasach DATE Given :- Fou duenachimass cost ape years of school e ose For slacker root of a years of school e Firm 1: - Earning when workesu Jhame atleast 6 years of scho Earning when workou vhave any year ofschooling = 48 Firm2 :- Faining when workou have atleast 2 you of schooling Earning of worker when have any no of schooling year = Ansi. Evin 1 - Yeas, The educational requirement of Evin L can help them to easily wiolinguish between Quaracheutels and skickous, Reason 1 6 years of schooling which mean, Clange) huge time which is not easy to do. - Furm 1 can easily distinguish there workers on the basis of Quotachomers and slackers ca Scanned with while in fuim 2 ut will not be canyone CamScannebecause 2 years at schooling als not hand

Sabyasachi DATE ! Technical Reason Firm L. Overachieuse: - - Gyears of education which is 12-0.5*6 = $9 while Oyears of education ultimi Slackests:- O years of eelucahon 8-0=48 - 6 years of education : 12-6= $6 - So. They will be choosing no education. Firm 2 - Overachocuers :- O years of education s f-0 = $8 20120.5xe I 2 years of education 420 05 te = 12-0.5+2 = 118 foo hence Quenachewens chemse Iyear of education Slackous- Oyears of education = o-o-88 2 years of education = &-' 2 - 6$ 6 - 2 6$ Ics Scanned with u choose no - education CamScanner

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