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Unformatted text preview: (so that his payo/ is $20 & $10 = $10) : If Alex doesn²t declare and an inspection is carried out the CBSA will con³scate his bottle of whiskey and ³ne him $10 (payo/ will be & $10 ). An inspection costs the agency $5 . Any duties or ³nes paid by Alex go to the CBSA as revenues (contribute to the CBSA payo/s). The bottle of whiskey is poured down the drain (does not contribute to CBSA payo/s). (a) Show the normal form of this game (the game matrix or table) and identify best responses of both players (5 marks) 1 (b) Find a Nash equilibrium to this game. (8 marks) (c) Suppose the game is sequential. Alex &rst chooses whether or not to Declare. Brenda, after observing Alex±s choice, then decides whether or not to inspect. Draw the game tree to the sequential game and use backward induction to identify the Subgame Perfect Nash Equilibrium. (7 marks) 2...
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This note was uploaded on 01/31/2011 for the course ECON 303 taught by Professor M during the Spring '10 term at UBC.
- Spring '10