--%>
Assignment Help - homework help

  Market signaling and Educational Signaling Game model

Market signaling:

1) Education as a signal:

Market signaling is a way for sellers of a good or service to convey hidden information about quality to buyers. Let’s think about the model, where a worker’s college educational background serves as a signal of the potential quality of his work. In this model, college education has no direct impact on the worker’s productivity. High-quality workers are more productive because they are more efficient, not because they are well educated.

2) Educational Signaling Game (model):

• 1 worker and 2 prospective employers

• Nature specifies a worker as either high-quality or low-quality with probability 0.5. The worker knows her quality, but employers do not. Low-quality workers produce production q = 6.00 and high-quality workers produce production q = 16.50.

• Workers choose a level of college education. si = 1 (college) and si = 0 (no college).

• The two employers all offer the worker a wage w = (wsi)

• The worker accepts one of the two contracts or rejects both.

• w (1) = 16.50 and w(0) = 6.00

• πW = w − 72(s / q) (worker’s payoff if s/he accepts one w(si))

• πW = 0 (if worker rejects both)

• πE = q − w(employer’s payoff whose contract is accepted. Zero-profit line)

• πE = 0 (for employer whose contract is rejected)

A crucial assumption of the Spence model is that the cost of education, 72(s/q), is greater for low-quality workers (72/6 = 12) than high-quality workers (72/16.50 = 4.36). This means that high-quality workers complete school in less time than low-quality workers, and there have lower opportunity costs of education (single crossing condition or Spence-Mirrless condition).

Competition between employers ensures that firms hire workers as long as the wage equals the value of the worker’s output (wage = VMPL = p ⋅ MPL).

• Hire low-quality worker if w(si) = w(0) = qL = 6.00

• Hire high-quality worker if w(si) = w(1) = qH = 16.50

• π WL = w(0) − 0= 6. 00 − 0= 6. 00 > w(1) −72/6. 00 = 16. 50 −12 = 4. 50

(The low-quality worker is better off not going to college)

• πHW= w(0) − 0= 6. 00 − 0= 6. 00 > w(1)) −72/16.50 = 16.50 - 4. 36 = 12.14

(The high-quality worker is better off going to college)

• The equilibrium for the education game is:

s(low-quality worker) = 0; s(high-quality worker) = 1

and

w(0) = 6.00 ; w(1) = 16.50

• Only high-quality workers get an education, so employers identify the high-quality workers and pay them a wage equal to 16.50. Low-quality workers elect not to get an education, so employers identify the low-quality workers and pay them a wage equal to 6.00.

• In this game, college education seems to be wasteful, because it imposes costs on society but does nothing to increase workers’ productivity. Although this may be a disturbing conclusion, there are reasons to believe that even if a college education is only a signaling device, we are better off with a college education system.

• College facilitates us to match workers with jobs more efficiently. In the absence of college, employers would be unable to differentiate between high-quality and low-quality workers. Without college education signal, low-level position may be filled with high-quality workers and they are underutilized and many of the high-level positions will be under-productive.

Latest technology based Microeconomics Online Tutoring Assistance

Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Microeconomics help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Microeconomics, project ideas and tutorials. We provide email based Microeconomics help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Microeconomics Homework help and assignment help services. They use their experience, as they have solved thousands of the Microeconomics assignments, which may help you to solve your complex issues of Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.