shapiro-stiglitz Flashcards
Assumptions
I –> workers
N–> firms
effort level
ê (e bar) or 0
probability of job destruction at time t0
P(t)=e<span>-b(t-to)</span>
<span>b>0</span>
=P(t+tau)/P(t)
=e-b(tau)
(probability of being employed at time t is independent of t+tau)
job breakups occur with probability
b
detection of shirking follows a ______ process
poisson
detection of shirking occurs with probability __ per unit time
q
VE
value of being employed and exherting effort
unemployed workers find employment at rate __ per unit time
a
Vu
value of being unemployed
worker discount rate is__
p (rho)
wage
w
no shirking condition
pVs=w-(b+q)(Vs-Vu)
pVu= 0+a(VE-VU)
given effort cant exceed ebar, no incentive to pay any excess so
VE=VS
VE-Vu=
ebar/q
wage needed to induce effort
w=
ebar + (a+b+p)(ebar/q)
wage is decreasing in:
probability that shirkers are detected q
in steady state
movements in and out of employment balance
Number of workers becoming unemployed per unit time=
Nhb
Lbar=
total # of available workers
L=
workers exherting effort hired per firm
product of labor
F
Marginal product of labor=
F’
firms hire up to the point where the marginal product of labor equals the ____
wage
is there a wage at full employment that can deter shirking?
no
the firms problem is to _________________
set wage high enough to prevent shirking, then choose L
if there were perfect monitoring of shirking, there would be_____
full employment
equilibrium occurs where the__________________
the aggregate demand for labor intersects the no shirking condition
if wage goes up
fewer workers are demanded L down
eq for number of of workers becoming unemployed per unit time:
NLb
eq for number of unemployed workers finding jobs:
(Lbar-NL)a
