Lecture 23. 3. Dee 07 Not verifiable ~ costly sigaaling Gruerkers 250 (predsctivity) 10% Asymeetsic lafoconetion > Sraaalin goaling B- workers 230 ¢ = ) qo eee ee Vecficbte lnformetion Fices compete For workers , so FY 50 fo workers they ideanhy as G 30 32 ty a worker they cannot identify Main signal is Education — (Spence) MEA suppose that the Cost Pour of MBA-educ 5 6 tee not fees 1.01 B worker J oF az ty Costs, Fclaion phere is an ep uilibrium in which Agrees take 3 years G-workers all get MBAs B-workers do not eal the employers identify "A= aor MBA=B To cheek Separating Equilibrium ONeed to check ao type will deviate Gonriers —y mBArid'ed 03 G —> pryo 5020s ie a0 sa *% deviate 7 Mea 7 id’ asBe—> poy 30 ey Cournat Firm B has Costs co” Ficm A hes costs { Firm 8 oe a its costs Firm A knows both cosrs Fim A can cost lessly and vee. Fiably Feveal its costs te B Strategic Stbsritvtes | ty If ch then reveal Therefore C™ reveals as well to prevent ~warkess —p ct, 7 id‘ es 8 —> payor being mistaken for cH Boworkes > agg Pies 8 —> poyo” 30 duig > 184 > iied as G—> pave 5o“Cxl0a Thecefire ¢" is revealed” 820 -y informational unraveling Lesson lack of a signal can be informative @ Need to chuck thet employers beliefs ove consisten with equilibrium behavior "Silence speaks volumes" How about a one-yeor MBA? Open Yale ‘Sorccncanmercarsnus Mba Deore uneee egos orHow about @ one-year MBA? Nob an equilibrium foe 6- workers in the’ eguilehriam” > MSA —> 30 if deviate > mA 2 S0-ixt0.1) zHO xX identified as Bat two-year MBA will work Need enough difference in cost for G to get the degree B not to want to do so Sn | Lesson + @ good signal needs to be differentially costly across types = qualification inflation Lessons for Education ( pessimistic = no leaning, only pain (2) Socially wasteful Send profestors to deive dump teucks (3) imecteses inewalty ~ hurts he poor Open Yale cours