ECO 3123 Lecture Notes - Lecture 3: Pension, Inverse Relation, Market Failure
9 Dec 2016
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Document Summary
Additional wage paid to entice worker to choose a undesirable job over other opportunities for which they are equally skilled. Compensation for self selection into an undesirable job. People have different tastes and preferences which explains why they choose differently in order to maximize utility. Due to characteristic of a job (positive or negative) Workers want to maximize utility which depends on both wages and nonpecuniary costs + have other choices. Highly adverse---> seek jobs at firms where risk is cheaper to reduce. Less adverse---> seek jobs at the top of the offer curve at firms where reducing risk is more costly. Isoprofit- shows the given combinations of risk and. Isoprofit- shows the given combinations of risk and wage paid for a given level of profit. Slope of the isoprofit curve---> cost of reducing risk. Steeper---> must give up a lot of wage to reduce risk- more costly to reduce risk.
