You need to hire some new employees to staff your startup venture. You know that potential employees are distributed throughout the population as follows, but you can't distinguish among them: Employee Value Probability $35,000 0.1 $46,000 0.1 $57,000 0.1 $68,000 0.1 $79,000 0.1 $90,000 0.1 $101,000 0.1 $112,000 0.1
You need to hire some new employees to staff your startup venture. You know that potential employees are distributed throughout the population as follows, but you can't distinguish among them: Employee Value Probability $35,000 0.1 $46,000 0.1 $57,000 0.1 $68,000 0.1 $79,000 0.1 $90,000 0.1 $101,000 0.1 $112,000 0.1
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
You need to hire some new employees to staff your startup venture. You know that potential employees are distributed throughout the population as follows, but you can't distinguish among them:
|
Employee Value
|
Probability
|
|---|---|
| $35,000 | 0.1 |
| $46,000 | 0.1 |
| $57,000 | 0.1 |
| $68,000 | 0.1 |
| $79,000 | 0.1 |
| $90,000 | 0.1 |
| $101,000 | 0.1 |
| $112,000 | 0.1 |
| $123,000 | 0.1 |
| $134,000 | 0.1 |
The expected value of hiring one employee is $_____
.
Suppose you set the salary of the position equal to the expected value of an employee. Assume that employees will not work for a salary below their employee value.
The expected value of an employee who would apply for the position, at this salary, is $_____
.
Given this adverse selection, your most reasonable salary offer (that ensures you do not lose money) is _________ ($46,000/$57,000/$35,000/$68,000).
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