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Costly Testing I Screening and Signaling
Appendix to Chapter 2
3 other sections not shown
45 line Akerlof assumption bargaining game Chapter choice of rj constraint contract structure contracts implied defined definition of equilibrium efficient equations equilibrium concepts expected return condition firm gains to trade high productivity workers high quality commodities high risk individuals highest testing offer indifference curve insurance model Intuitive Criterion Kohlberg and Mertens labor market model low productivity workers low quality commodities low risk individuals measure of sellers Miyazaki equilibrium Nash equilibrium nonexistence nonnegative profits nontesting offer optimal choice order condition positive measure positive profits positive return possible posterior probability purchase offer quality commodities apply Recontracting Rothschild and Stiglitz Rothschild-Stiglitz equilibrium sellers apply sellers with high sellers with low sequential equilibrium set of contracts set of offers shown in Figure signaling game solution solution concept strategy strictly Theorem type C equilibrium universal divinity value of q value of rj zero expected return