econ sucks

The optimal pooling equilibrium is where the firm believes that anyone with e*≠0 is a low type and then pays WP to everyone with e*=0. This is socially optimal because no one will have an incentive to get education, which we have assumed is useless. The optimal separating equilibrium is at e*=√5 (assume low types don�t get education if indifferent) because it is the minimum amount of education required to sustain a separating equilibrium. Social welfare is higher in the pooling equilibrium because no one expends utility on �useless� education.