Consider the following variation of the basic Harris-Todaro Model. Assume that t

Question

Consider the following variation of the basic Harris-Todaro Model. Assume that the going wage in agriculture is normalized at 1. The wage in the formal urban sector is 3. The wage in the informal sector is 0.5. Additionally, 20% of working adults who live in the city are employed in the formal sector. Also, assume that the discount rate is 10% and that the lifetime of an individual is only 2 periods. Consider the following situations: [4 points in total]

a)     Assume that in order to move to the city the individual would have to purchase a bus ticker worth 0.1.

Explanation / Answer

I) 0.7%

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