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Motivated by anecdotal as well as econometric evidence from Italy, we ask whether private schools can provide lower … offering at a positive price lower quality than the public school can be an equilibrium. The calibrated parameters for Italy …
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In our simple model the supervisor: i) cannot observe the agent's effort; ii) aims at inducing the agent to exert high effort; but iii) can only offer rewards based on performance. Since performance is only stochastically related to effort, evaluation errors may occur. In particular, deserving...
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