PS 20 asym infos and repeated games

PS 20 asym infos and repeated games - Intermediate...

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Intermediate Microeconomics, Winter 2008 Problem Set No 20 due: Monday, April 7; Tuesday, April 8 Reading: Chaper 18, Asymmetric Information and Adverse Selection, pp635 - 646 Q1. Alternating O/er Bargaining . Suppose a buyer and a seller bargain over a price for a good. The value of the good is v for the buyer and c for the seller, with c < v v = 1 and c = 0 ). These values are known to both of them. They bargain according to the following protocol: First, the seller makes a price o/er p s 2 [0 ; 1] . Then, the buyer accepts or rejects. If the buyer accepts the o/er, the game is over and the payo/s are v p s for the buyer and p s c for the seller. If the buyer rejects the o/er, the buyer can make a price o/er p b himself in the next period and the seller can accept or reject p b . If they trade in the second period, payo/s are discounted by 2 (0 ; 1) so the payo/s are v p b ± and p b c ± respectively if the seller accepts. Payo/s are zero if the seller rejects. the second period, i.e., what will be p b ? b) Given your knowledge of p b , what will be p s ? seller o/ers p s 1 , then, if p s 1 is rejected, the buyer o/ers p b p b is rejected, the seller can o/er p s 2 . Of course, payo/s in the third period are discounted by 2 1 (d) If you are up for more of a challenge, you might try to solve for the since this is a hard problem indeed.) Q2. Guarded again . Reconsider the stores who have to decide on the number of guards to hire in a mall. You might recall that their costs and their valuations can be summarized by the following table:
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This note was uploaded on 12/10/2011 for the course ECON 401 taught by Professor Burbidge,john during the Winter '08 term at Waterloo.

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PS 20 asym infos and repeated games - Intermediate...

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