Pearson eText Microeconomics -- Instant Access (Pearson+)
9th Edition
ISBN: 9780136879572
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON+
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Chapter 13, Problem 11E
To determine
Differences in success
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Brett and Oliver are both going surfing. Each can choose between "North Beach" (N) and "South Beach" (S). North beach is better, but they both also prefer having
the beach to themselves rather than sharing it with the other person. If Brett chooses N and Oliver N, the payoffs are (60, 60). If Brett chooses N and Oliver Chooses
S, the payoffs are (70,30). If Brett chooses S and Oliver N the payoffs are (30,70). If they both choose S the payoffs are (20,20). Brett gets to choose first and tells
Oliver, who then makes a decision. Which of the following is true?
O The number of nash equillibrium in this game is less than the number of subgame perfect equillibrium
O The number of nash equillibrium in this game is the same as the number of subgame perfect equillibrium
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O There is no subgame perfect equilibrium in this game
Cameron and Luke are playing a game called ”Race to 10”. Cameron goes first, and the players take turns choosing either 1 or 2. In each turn, they add the new number to a running total. The player who brings the total to exactly 10 wins the game. a) If both Cameron and Luke play optimally, who will win the game? Does the game have a first-mover advantage or a second-mover advantage? b) Suppose the game is modified to ”Race to 11” (i.e, the player who reaches 11 first wins). Who will win the game if both players play their optimal strategies? What if the game is ”Race to 12”? Does the result change? c) Consider the general version of the game called ”Race to n,” where n is a positive integer greater than 0. What are the conditions on n such that the game has a first mover advantage? What are the conditions on n such that the game has a second mover advantage?
Consider a bilateral relationship between an employer and employee, where the output of the firm,
q, depends on the effort level, e, exerted by the worker. The probability of occurring is conditional
on the effort level of the worker, i.e. Prob = [q = q¡le] = P;(q)V i = {1,2,.,n}. The employer
has a VNM utility function given by G(q – w). where W is the wage paid to the worker, while the
worker's VNM utility function is given by U(w, e) = u(w) – d(e). The worker has a fallback
utility of U.
What does it mean to say that information about the worker's effort level is symmetric?
b. Solve the employer's maximization problem when information is symmetric. In your
answer motivate why the participation constraint binds.
c. If information is symmetric, what type of contract should the employer offer if (i) he is
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а.
neutral
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