# HW3 - things 9 a and an “interaction term” combining...

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Econ 398 Homework 3 Due Sept. 26, 2008 1) Dixit & Skeath, Chapter 4, problems 2b, 2c. 2) Dixit & Skeath, Chapter 4, problems 3b, 3c. 3) Dixit & Skeath, Chapter 4, problem 10. 4) Dixit & Skeath, Chapter 5, problem 3. 5) Alice and Bob are each considering contributing to a public park which will be enjoyed by all. Alice has \$9, of which she’ll contribute \$a. Bob has \$12 of which he’ll contribute \$b. Alice’s payoff depends on the total contribution, a + b, the money she has left over to spend on other
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Unformatted text preview: things, 9 - a, and an “interaction term” combining both of these terms, (9-a)(a+b). Thus her payoff, x = a + b + 9 – a + (9-a)(a+b) = b + 9 +(9-a)(a+b). Similarly, Bob’s payoff is given by y = a + b + 12 – b + (12-b)(a+b) = a + 12 +(12-b)(a+b). Find the Nash Equilibrium contributions. Are these contribution levels Pareto Efficient? If not, find the Pareto Efficient levels of contributions....
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