# Homework: Hedonic Theory Assume that there is a baseline risk of death on the job of q0 percent annually. Firms can invest to reduce this risk, so that actual risk at a job is q(i)=q0 – i*ß. Here i is amount invested into reducing the risk a given employee faces. Of course mortality is bounded below by 0, so the maximum productive amount that can be invested in reducing mortality risk is iMax = q0/ß . All firms produce the same good c and this good has a price equal to 1. All workers are equally productive and produce an output of H of the consumption good. Question 1 Derive an expression of wages w(q) in this economy that has to be satisfied by wage – risk combinations that competitive firms would be willing to offer to workers in equilibrium. Question 2 Consider now individuals that have preferences over consumption and risk of death given by U c s ( , ), where 0 s ? q ? q is “job safety” relative to base-line risk 0 q . Write down the maximization problem that workers face and illustrate the choice problem in a graph in a two-dimensional graph with c and s on the axes. Assume that the parameter values are such that the solution is in the interior (ie 0 s q ? ) Question 3 Say consumers preferences are such that a both c and s are normal goods. Assume furthermore that individuals differ in the human capital H (but still everybody has 0 s q ? ). Consider two individuals of whom one has a higher level of H than the other. Who will earn higher wages and who will face greater risk? Will the two individuals differ in their Value of a Statistical Life (VSL)? Question 4 Use your answer to question 3 to explain why it might be difficult to empirically measure the VSL using the relation between wages and risk. SHORT, PRECISE, CLEAR, AND CORRECT ANSWERS RECEIVE FULL POINTS. – GradSchoolPapers.com

### Stuck with a difficult assignment? No time to get your paper done? Feeling confused? If you’re looking for reliable and timely help for assignments, you’ve come to the right place. We promise 100% original, plagiarism-free papers custom-written for you. Yes, we write every assignment from scratch and it’s solely custom-made for you.

Order a Similar Paper Order a Different Paper

Get 10% Off on your 1st order!

### We’ve proficient writers who can handle both short and long papers, be they academic or non-academic papers, on topics ranging from soup to nuts (both literally and as the saying goes, if you know what we mean). We know how much you care about your grades and academic success. That's why we ensure the highest quality for your assignment. We're ready to help you even in the most critical situation. We're the perfect solution for all your writing needs.

Get a 15% discount on your order using the following coupon code SAVE15

Order a Similar Paper Order a Different Paper