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*This page is included under the section [[BPP Field Exam]]*This page is provides questions to the [[BPP Field Exam 2009 Answers]]
The 2009 field exam was on June 27th 20082009. Reference material was permitted, communication was not. It was stated that grading would be based on the assigned times for each question.
==Format and Originators==
*C - de Figueiredo
*D - Spiller
==Answers==
Complete and partial anwsers to some questions are provided on the [[BPP Field Exam 2009 Answers]] page.
==Questions==
===Question B1: Work contracts with a continuum of workers===
A firm is hiring from a continuum of workers with unit mass. Workers are heterogenous in their cost of effort. A typical worker has a private cost type <math>c\,</math> where <math>c\,</math> is uniformly distributed on the interval <math>[\frac{1}{2},1]\,</math>. A worker of type <math>c\,</math> who puts in effort <math>e\,</math> pays a personal cost of effort <math>ce^2\,</math>. All workers are risk-neutral so their payoffs are simply :
<math>\pi_w = m -ce^2\,</math>
where <math>m \,</math> is the compensation paid to the worker by the firm,
The firm's objective function is to maximize the sum of the efforts on the part of the workers. Effort is observable; however the worker's cost type is not. Furthermore the workers are protected by limited liability, so the firm cannot pay negative amounts to the workers. That is, the total expenditure of the firm on wages can be, at most, <math>\frac{1}{2}\,</math>. A firm derives benefit only from effort - not from any unspent portion of its budget.
Consider an economy with many identical Buyers that can each engage in a transaction with one of many sellers. For concreteness, imagine that there are more buyers than sellers and that the market for transactions must clear. The transaction can either succeed or fail. Each buyer’s value of "success" is 1 and of "failure" is 0.
There are two kinds of Sellers. A proportion <math>1 - \beta\,</math> are "good" and they succeed with probability <math>p > 0\,</math>. A proportion <math>\beta\,</math> are "opportunistic" and can choose some effort, <math>e \in [0,1]\,</math> at a personal cost of <math>c(e)\,</math> where <math>c'(0) = 0, c'(1) = \infinityinfty\,</math> and <math>c''(e) > 0 \;\forall e = \ge 0\,</math>. The opportunistic types succeed with probability <math>ep\,</math>.
The economy operates for 2 periods. Sellers live for two periods but a new cohort of buyers is active in each period, and second period buyers can observe the first period outcome of transactions.
e.) If the sellers exert effort in the equilibrium you found in (d) in some period, what market mechanism provides them with incentives? How would you interpret his?
===Question C1C: Bargaining over Policy===
Consider the role of the US President in policy bargaining with the US Congress. Amongst the institutional tools the President has is the Presidential veto. This question asks you to explore the nature of this instrument.
'''Part I'''. For the following 2 cases, (1) outline how you would set up a model to study the institution, (2) discuss what you think may be the main interesting propositions, and (3) explain your logic for how they would be derived. (Note: you do not need formal proofs of your propositions, but you do need to sketch them and/or explain why you believe they will hold if formally derived).
a.) One puzzle in the literature is: If a veto is costly to both the President and Congress, why is the veto ever observed in practice? Whay Why can't a bargain be struck which avoids the "suboptimal losses" from the actual exercise of a veto? Outline a model in which vetoes are observed in equilibrium. Discuss what you believe are the primary propositions which will be derivable from this model.
b.) Another question about presidential power is: How do the existence of a veto player affect multi-lateral bargaining (in a legislature)? Outline a model of bargaining in legislatures with a Presidential veto. How will the inclusion of a Presidential veto affect you predictions under different institutional settings? In other words, compare how your results compare across different institutional settings (e.g. open versus closed rules, finite versus infinite horizon).
