Extension to basic mccall model -- response to volatility #707
Description
Lift the continuous wage offer distribution model out of the exercises, into its own section, titled Continuous Offer Distribution. Put it just before Exercises.
After that, add a new section labeled "Volatility".
An interesting thing about the model is that more volatility in wage offers tends to push down the reservation wage --- volatility is attrative in the basic model because workers can enjoy the upside while rejecting the downside. Hence, with more volatility, they are more likely to continue than stop.
Illustrate this with a mean preserving spread of the offer distribution, with volatility parameter sigma. Show that the reservation wage is decreasing in sigma.
Finally, look at the exercise that starts with "Compute the average duration of ..." Change the solution so that it uses the continous wage offer distribution.