Determine the equilibrium outcomes or a pooling

Reference no: EM13198994

Consider the education signaling model presented in class. The motivated worker is paid $900,000 in terms of present value of lifetime income while the unmotivated worker is paid $750,000. The monetized disutility of getting an MBA degree (including the actual cost) is $10,000 for a motivated worker and $20,000 for the unmotivated worker. An employer does not know workers' motivation level.

a. Assume the proportion of motivated workers is 20%. Determine the equilibrium outcomes (wages and net payoffs to each type of worker) for a pooling and a separating equilibrium.

b. Assume the proportion of motivated workers is 50%. Determine the equilibrium outcomes (wages and net payoffs to each type of worker) for a pooling and a separating equilibrium.

c. Would the unmotivated worker always prefer a pooling equilibrium to a separating equilibrium? What about the motivated worker?

Reference no: EM13198994

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