Suppose that the average lifetime earnings for someone in the waste managementindustry is $1 million. The average lifetime earnings for someone in the constructionindustry is $1.5 million.Now, suppose the construction industry is riskier, with workers having a greaterchance of dying on the job. The overall difference in probability of death betweenthe two industries is 10 percentage points (i.e. 0.10).Using this information, calculate the implied average valuation of life.

There are two industries Waste Management and Construction . Let us take probability of dying in…

Answered: Suppose that the average lifetime…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 $30,000 $49,000 $68,000 $87,000 Probability 0.25 0.25 0.25 0.25 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
In the Hawaiian Beach Boy surf board vendor scenario, what if the fine was increased to $190 but the probability of a fine decreased to one in 20 days, 5%? What would be the expected value – Exp(RS) -- of continuing to rent surfboards? Assume the other numbers stay the same. He makes $300/day and to rent boards from friends costs him $100 a day. So, he makes $200 a day. Write out the expected value formula, plug in the numbers, and show the math. Hint: the Exp(RS) should be higher than the previously calculated $160.
Suppose that I am willing to pay $400 for anti-lock brakes that reduce my chance of dying in a car accident from 9 in 10,000 (0.0009) to 5 in 10,000, (0.0005). Based on this choice, what would be an estimate of the minimum value that I place on a statistical life? Show your work
Assume, in producing one unit of a good X, an agent can exert either the good effort (G) or the bad effort (L), which cause production defects with probability 0.25 or 0.75 respectively. His utility function in effort e and wage w is U(w, e) = 100 (10/w) c(e) where c(G) = 2 for the good effort and c(L) = () for the bad effort. Production defects are contractible and so can be included in the agent's contract, but effort is not contractible. Good X sells for $20 if there are no defects and $0 otherwise. The principal is risk-neutral and likes profit. Assume the agent has a reservation utility/outside option of U=0. If effort is not contractible then:: Select one: O a. There is insufficient information to know the principal's choice of contract because we do not know the agent's level of absolute risk aversion. O b. the principal will be indifferent between writing a contract to achieve the good effort level and writing a contract to achieve the bad effort level O c. the principal will…
Bob's farm harvests corns worth 106 thousand dollars (and nothing else). In each year, there is a 24% chance that a storm will attack and leaves him with only 26 thousand dollars worth of the corns. Bob's preferences over wealth are represented by U = ln w . What is the maximum that Bob is willing to pay for full insurance (in unit of thousand dollars)? (Round answers to 2 decimal places).
Suppose you manage a factory with ten workers. Each worker’s output is determined by the equation q = e. Output sells in the market for a price of 40. The firm has fixed cost equal to 800, and variable costs aside from labor are 8 per unit of output. Worker utility is U = w – e2. Suppose you are paying workers a wage equal to bq. What is the profit- maximizing value of b? Suppose that the probability of worker error increases as the worker increases effort, and that worker error results in unusable output. Suppose that the probability of worker error is Pr[Error] = e/10. Then for worker effort level e, expected (usable) output is now determined by the equation E[q] = (1-Pr[Error]) x e. However, the problem is that you cannot detect errors until after the product is shipped to customers, meaning you pay workers for output before you know whether it is usable or not, and you have to refund your customers for unusable output. Demonstrate why you should not pay your workers the same…
Part e,f and d solution need
(a) Will dynastic preferences, such as those discussed in Section 5.2, lead to infinite-horizon maximization if the instantaneous utility functions of future generations are different (ut(.) potentially different for each generation t)? (b) How would the results be different if an individual cares about the continuation utility of his offspring with discount factor β, but also cares about the continuation utility of the offspring of his offspring with a smaller discount factor δ?
Which of the following shapes is the most likely plot of the utility-of-wealth function for a risk-averse person? Utility OA B D B D A Wealth C
3. A risk-neutral principal hires an agent to work on a project at wage w. The agent's utility function is: v(w)-g(e), where v(w)= Jw and g(e)=e/2 The agent can choose one of two possible effort levels, e¡ = 4 or e, = 6 . If the agent chooses effort level e, = 4 the project yields 100 with probability 1/4 and 0 with probability 3/4. If he chooses e, = 6 the project yields 100 with probability ½ and 0 with probability ½. The reservation utility of the agent is 0. (a) Suppose the effort level chosen by the agent is observable by the principal. Find the contract chosen by the principal. Show graphically in terms of contingent utilities v(w,00) and v(w.)

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