Changes
Jump to navigation
Jump to search
Fernandez Rodrik (1991) - Resistance To Reform Status Quo Bias In The Presence Of Individual Specific Uncertainty (view source)
Revision as of 04:38, 8 March 2011
, 04:38, 8 March 2011→The Model
==The Model==
The paper studies the choice of workers to invest in changing sectors where their costs of doing so are (at least partly) unknown. There is a two sector perfectly competitive economy, where the sectors produce goods <math>X\,</math> and <math>Y\,</math> respectively. Both sectors use one factor, labour <math>L\,</math>, and have constant returns to scale.
:<math>X = \frac{L_x}{a_x}\,</math>
where <math>a_j > 0, j \in \{x,y\}\,</math>
The cost of relocating between sectors for labour is made up of <math>\theta\,</math>, a general cost, and <math>c_j\,</math>, a sector specific entry cost. <math>c_j\,</math> is unknown and drawn from <math>f(c)\,</math>, which is known. The switching sequence is that workers must expend <math>\theta\,</math> in order to decide whether to switch, and if they do they then incur <math>c_j\,</math>.
