Suppose electricians come in two types: competent and incompetent. Both types of electricians can get certified, but for the incompetent types, certification takes extra time and effort. Competent ones have to spend (M) months preparing for the certification exam; incompetent ones take twice as long, i.e. (2M). The cost of preparing for the exam is 2 (thousand dollars) per month for a competent type and 4 (thousand dollars) per month for an incompetent type. Assume that both types will pass the exam and get certified if they spend the corresponding required amount of time (M months for the competent type and 2M months for the incompetent type) preparing. Certified electricians can earn 120 (thousand dollars) each year working on building sites for licensed contractors. Uncertified electricians can earn only 80 (thousand dollars) each year in freelance work; licensed contractors will not hire uncertified electricians. Each type of electrician's payoff is equal to their salary minus the total cost of preparing for the certification exam, i.e. (cost per month*number of months spent preparing). (Note that if one chooses not to get the certified, then the payoff is simply the 80 (thousand dollars) salary they get as defined above.) This interaction between the two types of electricians (competent and incompetent) and the licensed contractors is an example of ➡ problem where the licensed contractors are the and the electricians are the ◆
Suppose electricians come in two types: competent and incompetent. Both types of electricians can get certified, but for the incompetent types, certification takes extra time and effort. Competent ones have to spend (M) months preparing for the certification exam; incompetent ones take twice as long, i.e. (2M). The cost of preparing for the exam is 2 (thousand dollars) per month for a competent type and 4 (thousand dollars) per month for an incompetent type. Assume that both types will pass the exam and get certified if they spend the corresponding required amount of time (M months for the competent type and 2M months for the incompetent type) preparing. Certified electricians can earn 120 (thousand dollars) each year working on building sites for licensed contractors. Uncertified electricians can earn only 80 (thousand dollars) each year in freelance work; licensed contractors will not hire uncertified electricians. Each type of electrician's payoff is equal to their salary minus the total cost of preparing for the certification exam, i.e. (cost per month*number of months spent preparing). (Note that if one chooses not to get the certified, then the payoff is simply the 80 (thousand dollars) salary they get as defined above.) This interaction between the two types of electricians (competent and incompetent) and the licensed contractors is an example of ➡ problem where the licensed contractors are the and the electricians are the ◆
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
Related questions
Question
Transcribed Image Text:080 > 120 – 2 * M
-
080 2 120 – 4 * M
The incentive compatibility constraint for the incompetent type is
0120 – 2 * M > 80
0120 – 4 * M > 80
080 > 120 – 8 * M
080 > 120 – 4 * M
The certification requirement set by the licensed contractors (i.e. hiring only certified
electricians) will lead to a
equilibrium where only the competent
type gets certified if M is set such that both conditions are satisfied.
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Transcribed Image Text:Suppose electricians come in two types: competent and incompetent. Both types of
electricians can get certified, but for the incompetent types, certification takes extra
time and effort. Competent ones have to spend (M) months preparing for the
certification exam; incompetent ones take twice as long, i.e. (2M). The cost of
preparing for the exam is 2 (thousand dollars) per month for a competent type and 4
(thousand dollars) per month for an incompetent type. Assume that both types will
pass the exam and get certified if they spend the corresponding required amount of
time (M months for the competent type and 2M months for the incompetent type)
preparing.
Certified electricians can earn 120 (thousand dollars) each year working on building
sites for licensed contractors. Uncertified electricians can earn only 80 (thousand
dollars) each year in freelance work; licensed contractors will not hire uncertified
electricians.
Each type of electrician's payoff is equal to their salary minus the total cost of
preparing for the certification exam, i.e. (cost per month*number of months spent
preparing). (Note that if one chooses not to get the certified, then the payoff is simply
the 80 (thousand dollars) salary they get as defined above.)
This interaction between the two types of electricians (competent and incompetent)
and the licensed contractors is an example of
+ problem
where the licensed contractors are the
and the electricians are the
The incentive compatibility constraint for the competent type is
0120 – 2 * M > 80
-
0120 – 4 * M > 80
-
080 > 120 – 2 * M
080 2 120 – 4 * M
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