Consider the Mortensen-Pissarides model. Now suppose that an unemployed worker at the beginning of each period can choose between searching for a job and working as a self-employed worker during the period. If an unemployed worker searches for a job, then he or she will receive the unemployment benefit, b, and then will be matched with a job randomly. If an unemployed worker works as a self-employed worker, then he or she will receive z as the income for the current period, will not be able to search for a job within the same period, and will be an unemployed worker again at the beginning of the next period. Answer the following questions: 1.Define the Bellman equation for an unemployed worker. Notes: You only need to define the equation rather than solve it. Use the same notations of variables and parameters as in the problem statement described above. 2. Assume b = 1, c = 0.7, r = 0.1, y = 3, p = 0.3, and λ = 0.05, and also suppose 0 = 1.2 in the steady state. What is the maximum value of z that makes unemployed workers choose to search for a job in the steady state in this case? Note: Assume that if an unemployed worker is indifferent between searching for a job and being self-employed, he or she always chooses to search for a job.
Consider the Mortensen-Pissarides model. Now suppose that an unemployed worker at the beginning of each period can choose between searching for a job and working as a self-employed worker during the period. If an unemployed worker searches for a job, then he or she will receive the unemployment benefit, b, and then will be matched with a job randomly. If an unemployed worker works as a self-employed worker, then he or she will receive z as the income for the current period, will not be able to search for a job within the same period, and will be an unemployed worker again at the beginning of the next period. Answer the following questions: 1.Define the Bellman equation for an unemployed worker. Notes: You only need to define the equation rather than solve it. Use the same notations of variables and parameters as in the problem statement described above. 2. Assume b = 1, c = 0.7, r = 0.1, y = 3, p = 0.3, and λ = 0.05, and also suppose 0 = 1.2 in the steady state. What is the maximum value of z that makes unemployed workers choose to search for a job in the steady state in this case? Note: Assume that if an unemployed worker is indifferent between searching for a job and being self-employed, he or she always chooses to search for a job.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Consider the Mortensen-Pissarides model. Now suppose that an unemployed worker
at the beginning of each period can choose between searching for a job and working
as a self-employed worker during the period. If an unemployed worker searches for a
job, then he or she will receive the unemployment benefit, b, and then will be matched
with a job randomly. If an unemployed worker works as a self-employed worker, then
he or she will receive z as the income for the current period, will not be able to search
for a job within the same period, and will be an unemployed worker again at the
beginning of the next period.
Answer the following questions:
1.Define the Bellman equation for an unemployed worker.
Notes: You only need to define the equation rather than solve it. Use the same
notations of variables and parameters as in the problem statement described above.
=
2. Assume b = 1, c = 0.7, r = 0.1, y = 3, p = 0.3, and λ = 0.05, and also suppose Ꮎ
1.2 in the steady state. What is the maximum value of z that makes unemployed
workers choose to search for a job in the steady state in this case?
Note: Assume that if an unemployed worker is indifferent between searching for a job
and being self-employed, he or she always chooses to search for a job.
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