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- Why is there asymmetric information in the labor market? What signals can an employer look for that might indicate file traits they are seeking in a new employee?ps Suppose that every driver faces a 4% probability of an automoblle accident every year. An accident will, on average, cost each driver $9,000. Suppose there are two types of Individuals: those with $72,000.00 In the bank and those with $2,250.00 In the bank. Assume that Individuals with $2,250.00 In the bank declare bankruptcy If they get in an accldent. In bankruptcy, creditors recelve only what Individuals have In the bank. Assume that both types of Indtviduals are only slightly risk averse. In this scenarto, the actuarially fair price of full Insurance, In which all damages are pald by the Insurance company, Is Assume that the price of Insurance Is set at the actuarlally falr price. At this price, drivers with $72,000.00 in the bank likely buy Insurance, and those with $2,250,00 In the bank likely v buy Insurance. (Hint: For each type of dnver, compare the price of Insurance to the expected cost without Insurance.) Suppose a state law has been passed forcing all Individuals to…How would you test the presence of multicollinearity?
- Suppose there exist n = 1000 firms that seek to gain access to a small niche market that is regulated. Suppose that one firm will obtain access and that will get that firm an additional R = $50,000 in profits. Each firm already receives $1 million in profits from other ventures. a. Suppose the probability of winning the rents is linear in investment, each firm has an equal chance of winning and they are all risk-neutral. How much will each firm invest in rent-seeking? Are the rents fully dissipated? b. Suppose instead that the probability of winning changes with the amount invested in rent-seeking, so that each firm’s odds of gaining access are π(n,I) = I1/2 /n. Is the probability of winning increasing or decreasing in investment? Are there diminishing returns to rent-seeking? c. How much will each firm invest in rent-seeking? Are the rents fully dissipated, less than fully dissipated, or more than fully dissipated?How can deductibles, copayments, and coinsurance reduce moral hazard?2- Who is risk aversion?
- 1. Consider the figure below, which depicts the matching of jobs and workers. There are two jobs at firms X and Y and two workers A and B. Wage Rate Way WAX RAX R Ryy Risk of Injury a. Which worker is more risk averse? A or B? Which job does he take? How much does he carn? What is the highest utility he can achieve given the job opportunities? b. Which firm has the higher cost of reducing risk? Whom will it employ? How much will it pay? What is the highest level of profits it can achieve given the labor force? c. Draw the hedonic wage function on the graph and explain what kind of information it contains. d. What are the two main behavioral insights of the hedonic wage theory?Question 4 Suppose a prosecutor expects to convict a defendant with probability 0.5 and that the sentence on conviction is 10 years in prison. Assume the prosecutor values prison time at $1,000 per year (its value as a deterrent of crime), and incurs a cost of trial equal to $2,000. a. What is the minimum prison sentence the prosecutor will o er as part of a plea bargain if her objective is to maximize the expected value of the sentence imposed, less the cost of trial (ignore the information provided in b. below to answer this question a.)? b. Suppose the defendant believes his chances of being convicted are 0.3, his cost of prison time is $5,000 per year, and his cost of a trial is $1,000. Will he accept the plea bargain in a.?An individual has 40,000 in income per year. The person will get sick with probability 0.1. If he does get sick, the medical bills will total 30,000. The following tables shows the utility derived from certain amounts of income: Income Utility40,000 20037,000 19535,000 19030,000 17020,000 14010,000 100Considering the probability of illness, what is the expected utility of income without insurance? Show your work.
- Which of he following provisions of an individual Accident and Heallh policy allows for nonpayment of premiums in lhe event of the insured's total disability? A.Grace Period B.Elimination Period C.Waiver of Premium D.Return of PremiumAssume that there are two types of individuals in the population: Type A and Type B with the corresponding fractions fi and f2. The levels of ability for the two types are: α and aв, with αA > αB. Suppose also that Type A lives for T₁ years, while Type B lives for TB years. Briefly answer/evaluate FOUR out of the following six statements: A. If the financial resources available for a Type B individual are greater than those avail- able for a Type A individual, it is possible that the former will invest more in his/her human capital. B. Suppose that human capital is not productive, which of the two types will get more investment in schooling? C. Suppose that the government provides all wages and sets all wages to be the same. How would that affect the incentives of the two groups to invest in human capital?1. What is the human capital approach to health and education? What do you think are its most important strengths and weaknesses?2. What are the consequences of gen-der bias in health and education? Can a large gap between male and female literacy affect development? Why?
