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 when workers are employed by the firm, one has yyfor each = 12.) 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.