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Question 20 Consider a two-player contractual setting in which the players produce as a team. In the underlying game, players 1 and 2 each select high (H) or low (L) effort. A player who selects H pays a cost of 6; selecting L costs nothing. The players equally share the revenue that their efforts produce. If they both select H, then revenue is 20. If they both select L, then revenue is 0. If one of them selects H and the other selects L, then revenue is x. Thus, if both players choose H, then they each obtain a payoff of. 20 - 6 = 4; if player 1 selects H and player 2 selects L, then player 1 gets .x - 6 and player 2 gets .x; and so on. Assume that x is between 0 and 20. Suppose a contract specifies the following monetary transfers from player 2 to player 1: a if (L, H) is played, ß if (H, L) is played, and y if (L, L) is played. a) Suppose that there is limited verifiability in the sense that the court can observe only the revenue (20, x, or 0) of the team, rather than the players' individual effort levels. How does this constrain a, ß, and y? b) What must be true about x to guarantee that (H, H) can be achieved with limited verifiability?

Question 20 Consider a two-player contractual setting in which the players produce as a team. In the underlying game, players 1 and 2 each select high (H) or low (L) effort. A player who selects H pays a cost of 6; selecting L costs nothing. The players equally share the revenue that their efforts produce. If they both select H, then revenue is 20. If they both select L, then revenue is 0. If one of them selects H and the other selects L, then revenue is x. Thus, if both players choose H, then they each obtain a payoff of. 20 - 6 = 4; if player 1 selects H and player 2 selects L, then player 1 gets .x - 6 and player 2 gets .x; and so on. Assume that x is between 0 and 20. Suppose a contract specifies the following monetary transfers from player 2 to player 1: a if (L, H) is played, ß if (H, L) is played, and y if (L, L) is played. a) Suppose that there is limited verifiability in the sense that the court can observe only the revenue (20, x, or 0) of the team, rather than the players' individual effort levels. How does this constrain a, ß, and y? b) What must be true about x to guarantee that (H, H) can be achieved with limited verifiability?

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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Question 20 Consider a two-player contractual setting in which the players produce as a team. In the underlying game, players 1 and 2 each select high (H) or low (L) effort. A player who selects H pays a cost of 6; selecting L costs nothing. The players equally share the revenue that their efforts produce. If they both select H, then revenue is 20. If they both select L, then revenue is 0. If one of them selects H and the other selects L, then revenue is x. Thus, if both players choose H, then they each obtain a payoff of .20 - 6 = 4; if player 1 selects H and player 2 selects L, then player 1 gets .x-6 and player 2 gets . x; and so on. Assume that x is between 0 and 20. Suppose a contract specifies the following monetary transfers from player 2 to player 1: a if (L, H) is played, B if (H, L) is played, and y if (L, L) is played. a) Suppose that there is limited verifiability in the sense that the court can observe only the revenue (20, x, or 0) of the team, rather than the players' individual effort levels. How does this constrain a, B, and y? b) What must be true about x to guarantee that (H, H) can be achieved with limited verifiability?
Transcribed Image Text:Question 20 Consider a two-player contractual setting in which the players produce as a team. In the underlying game, players 1 and 2 each select high (H) or low (L) effort. A player who selects H pays a cost of 6; selecting L costs nothing. The players equally share the revenue that their efforts produce. If they both select H, then revenue is 20. If they both select L, then revenue is 0. If one of them selects H and the other selects L, then revenue is x. Thus, if both players choose H, then they each obtain a payoff of .20 - 6 = 4; if player 1 selects H and player 2 selects L, then player 1 gets .x-6 and player 2 gets . x; and so on. Assume that x is between 0 and 20. Suppose a contract specifies the following monetary transfers from player 2 to player 1: a if (L, H) is played, B if (H, L) is played, and y if (L, L) is played. a) Suppose that there is limited verifiability in the sense that the court can observe only the revenue (20, x, or 0) of the team, rather than the players' individual effort levels. How does this constrain a, B, and y? b) What must be true about x to guarantee that (H, H) can be achieved with limited verifiability?
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