Suppose that there are two types of persons: high-ability and low-ability. A diploma costs a high-ability person $20,000 and costs a low-ability person $50,000 (4 years in total). The reason why the costs differ by ability is that a low-ability person may hire a private lesson to get into university and he/she needs to work hard to meet the graduation requirements so that he/she cannot do part-time jobs. Firms wish to use education as a screening device (signaling) where they intend to pay $100,000 (the present value) to workers without a diploma and $ K (the present value) to those with a diploma. If K = $200, 000? Does a diploma work as an effective device signal?
Suppose that there are two types of persons: high-ability and low-ability. A diploma costs a high-ability person $20,000 and costs a low-ability person $50,000 (4 years in total). The reason why the costs differ by ability is that a low-ability person may hire a private lesson to get into university and he/she needs to work hard to meet the graduation requirements so that he/she cannot do part-time jobs. Firms wish to use education as a screening device (signaling) where they intend to pay $100,000 (the present value) to workers without a diploma and $ K (the present value) to those with a diploma. If K = $200, 000? Does a diploma work as an effective device signal?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Suppose that there are two types of persons: high-ability and low-ability. A diploma costs a high-ability person $20,000 and costs a low-ability person $50,000 (4 years in total). The reason why the costs differ by ability is that a low-ability person may hire a private lesson to get into university and he/she needs to work hard to meet the graduation requirements so that he/she cannot do part-time jobs. Firms wish to use education as a screening device (signaling) where they intend to pay $100,000 (the present value) to workers without a diploma and $ K (the present value) to those with a diploma.
If K = $200, 000? Does a diploma work as an effective device signal?
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