Chapter 14, Problem 11QFR

What are the disadvantages of payback screening analysis?

A competitive labor market offers traineeship programs. During the training, employees of type 1 will create a product worth dollars 1,000, while employees of type 2 will create a product worth dollars 5,000. The two types are indistinguishable, but type 2 is more patient - for these workers, sitting in on a Harvard lecture bored is just as harmful as losing 200 dollars, and for type 1 employees, losing 400 dollars. After completing the lectures and completing the training, all employees leave for Canada, where, due to the withdrawal from the American process, Canadian lectures are not counted. There is a separating balance in which those who listen to lectures with a total length of X hours will receive a salary of Dollars 5,000, and those who do not listen - Dollars 1,000. What are the possible values ​​of X?

The government can help solve the problem of adverse selection in each of these ways EXCEPT: a. reducing the need for insurance. b. requiring that everyone buy insurance. c. providing incentives for buyers to reveal private information. d. providing insurance.