Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 17, Problem 12P
To determine
Application of coase theorem in case of different divorce laws: when a person wanting the divorce wants it more than the person wanting the marriage to continue.
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Q.4
(b) Suppose there are two roommates John and Bill; each has a wealth of $1000.
They are trying to decide whether or not to buy a TV that costs $800, when each
of them values it at $600. They agree on the following procedure to decide
whether or not to buy the TV. Each person will write on a piece of paper whether
or not he thinks the TV should be purchased. If both say yes, they buy the TV and
split the cost evenly. If both say no, they don't buy the TV. If one says yes, and
the other says no, the person who says yes is obligated to buy the TV on his own.
In this context, answer the following:
(i)
Is it Pareto efficient for the two roommates to buy the TV? and
What is the dominant strategy of each player in this game?
(ii)
Suppose players A and B play a discrete ultimatum game where A proposes to split a $5 surplus and B responds by
either accepting the offer or rejecting it. The offer can only be made in $1 increments. If the offer is accepted, the
players' payoffs resemble the terms of the offer while if the offer is rejected, both players get zero. Also assume that
players always use the strategy that all strictly positive offers are accepted, but an offer of $0 is rejected.
A. What is the solution to the game in terms of player strategies and payoffs? Explain or demonstrate your answer.
B. Suppose the ultimatum game is played twice if player B rejects A's initial offer. If so, then B is allowed to
make a counter offer to split the $5, and if A rejects, both players get zero dollars at the end of the second round.
What is the solution to this bargaining game in terms of player strategies and payoffs? Explain/demonstrate your
answer.
C. Suppose the ultimatum game is played twice as in (B) but now there…
Two players are involved in a game. In the game each player begins with $10. Each
player must simultaneously make a choice of how much of the $10 to allocate between
two accounts: a 'private' account, and a 'public' account. Money allocated to the private
account by a player is kept by that player. Money allocated to the public account is
multiplied by 1.5, and then distributed back equally to each of the two players. Each
player has two possible choices: (i) Allocate $0 to the public account; (ii) Allocate $10 to
the public account. A player's payoff from each outcome is equal to the sum of their
private account money and one-half of the total public account money. For example, if
both players allocated $10 to the public account, they each have a payoff equal to $0 +
(1/2) ($20) (1.5) = $15.00.
Draw a game table to represent this game.
Do players have a strict dominant strategy in this game?
What is the Nash equilibrium of the game?
Does the Nash equilibrium outcome maximise the total…
Chapter 17 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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