Transcript Roy Model Slides

The Roy Model Notes
Petra Todd
Two-sector model of self-selection
• References
– A.D. Roy (1951), Heckman and Honore (1990, EMA)
• Relevant for
– theory of occupational choice (blue collar, white collar),
– union choice
– educational self-selection (high school, college)
• Two occupational choices
– fisherman
– Hunter
• Skill endowments (F, H) known to individuals
Distribution of skills
lnF
lnH
• Talent matters more in occupation with higher variance in skills
What is the average amount of fish for those who chose the
fishing occupation?
What is the total supply of fish in the population?
• As the price of fish increases, more people become
fisherman and the supply of fish increases
Think of a Production Possibility Frontier that Determines
the Aggregate Supply of fish and hunting output
ΣF
PPF
ΣH
What are the implications of self-selection for the
distribution of earnings?
Are earnings for hunters or fisherman higher or lower than
they would be if assignment to occupations were random?
How does change in price affect average ability levels?
Absolute Advantage Case
(best hunters are best fisherman)
F=(PH/PF)H
F
Skills (F,H) on this line
H
Here, decrease in PF or increase in PH induces higher ability fisherman to enter the
hunting occupation, which raises skill level in both occupations.
Absolute Advantage Case
(best hunters are best fisherman)
F=(PH/PF)H
F
Become hunters
Skills (F,H) on this line
H
Here, decrease in PF or increase in PH induces higher ability fisherman to enter the
hunting occupation, which raises skill level in both occupations.
Comparative Advantage Case
(best hunters are worst fisherman)
F=(PH/PF)H
F
Skills (F,H) on this line
H
Here, decrease in PF or increase in PH induces lower ability fisherman to enter the
hunting occupation, which raises avg skill level fishing, but lowers it in hunting.
Comparative Advantage Case
(best hunters are worst fisherman)
F=(PH/PF)H
F
Skills (F,H) on this line
H
Here, decrease in PF or increase in PH induces lower ability fisherman to enter the
hunting occupation, which raises avg skill level fishing, but lowers it in hunting.