A.In the context of Subsection 9.3.2 with effort unobservability, assume that (9.46) does not hold. Is there any subgame-perfect equilibrium where only one worker is hired every period? Discuss your answer.

 

B. Consider a context as described in Section 9.3, but with worker 1 being uniformly more productive than worker 2 for each scale of production, and suppose this fact is common knowledge. (That is, if yik denotes the productivity of worker i when k workers are employed by the firm, one has y1 k > y2 k for each k = 1, 2.) Specify conditions on the parameters of the model such that, with unobservability of workers’ effort, there exists an equilibrium where worker 1 is always hired but worker 2 never is.