2020-2021-Review Test 3-B def Solutions PDF

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Ejercicios de práctica para el examen final...

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Organizational Economics Review Test 3 (B) Total points: 10 Name:

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In the labor market for data scientists, there are high (A) and low ability (B) data scientists. Although firms hiring young data scientists are not able to identify the ability level of each candidate, they know that 10% of the data scientists have high ability and the rest have low ability. The value of a high-ability data scientists for a firm is 120, while the value of a low-ability one is 50. Assume that each company needs to hire one data scientist and there are more companies than data scientists. Assume also that the best alternative to working for a company is to become self-employed. The profit that a candidate would earn in self-employment is 60 for type A candidates and 30 for type B candidates. Assume that if a candidate is indifferent between working for a firm or becoming self-employed, she will choose to work for a firm. Suppose that candidates can enroll in training modules offered by a certification agency. It is known that these modules do not affect the productivity of the candidates at all. The cost (psychological costs, effort) of passing each of these modules is 5 for a high-ability data scientist (A) and 10 for a low-ability data scientist (B). Suppose that firms think that data scientists who obtain x* training modules or more are high-ability data scientists, while those that obtain fewer modules are low-ability data scientists. Given these expectations by firms: 1. What salary would a data scientist who takes x* training modules obtain? (1 point if correct, 0 otherwise) 120 2. And a data scientist who takes fewer modules? (1 point if correct, 0 otherwise) 50

3. For which values of x* would firms’ expectations be correct? That is, for which values of x* would the data scientists with high ability choose to take x* modules and the ones with low ability take less than x* modules? (4 points if correct, -1.33 if incorrect, 0 if blank.) a. 9 < 𝑥 ∗ ≤ 12 b. 7 < 𝑥 ∗ ≤ 14 c. 9 < 𝑥 ∗ ≤ 14 d. 𝟕 < 𝐱 ∗ ≤ 𝟏𝟐 4. In this question, you have to compare the candidates’ utilities with and without the certification agency, assuming that if there is a certification agency, firms think that data scientists who obtain x*=8 training modules or more are high-ability data scientists, while those that obtain fewer modules are low-ability data scientists, and in the absence of the certification agency firms do not screen workers in any way and there are no other ways for candidates to signal their ability (4 points if correct, -1.33 if incorrect, 0 if blank.): a. With the introduction of the certification both types of candidates are worse off. b. With the introduction of the certification A candidates benefit and B candidates are not worse off. c. The introduction of the certification does not have an impact on the utility of either type of candidate. d. With the introduction of the certification A candidates benefit and B candidates are worse off.

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