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# problemset8 - Problem Set 8 Econ 159a/MGT522a Ben Polak...

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Problem Set 8 Econ 159a/MGT522a Ben Polak Three Questions due November 14, 2007 1. Bargaining. It is November 1st, and Angus and Bronwen are arguing over how to divide the remainder of their left-over trick or treat candy. They decide on the following rules. On s A (1) ; s B (1)] where s A (1)+ s B (1) = 1. If Bronwen accepts then Angus gets a share s (1) of the candy and Bronwen gets s B (1). If Bronwen refuses, however, then no-one gets any candy on Nov 1st. In this case, on Nov 2nd, Bronwen gets to s A (2) ; s B (2)] where s A (2) + s B (2) = 1. If Angus accepts then Angus gets a share s A (2) of the candy and Bronwen gets s B (2). If Angus refuses, however, then no-one [ s A (3) ; s B (3)] where s A (3) + s B (3) = 1. If Bronwen accepts then Angus gets a share s A (3) of the candy and Bronwen gets s B (3). If Bronwen refuses, however, then no-one gets any candy s A (4) ; s B (4)] where s A (4) + s B (4) = 1. If Angus accepts then Angus gets a share s A (4) of the candy and Bronwen gets s B (4). If Angus refuses, however, then all the candy is thrown away by their parents. There is a catch. Both Angus and Bronwen are hungry and impatient for candy so they discount candy tomorrow. For Angus, each day, one candy tomorrow is worth only A candy today where A < 1. For Bronwen, each day, one candy tomorrow is only worth only B candy today where B < 1. It is commonly known that Angus and Bronwen are rational and that they are not interested in distributive justice. You may also assume that each of Angus and Bronwen (a)

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## This note was uploaded on 02/13/2012 for the course ECON 159 taught by Professor Benjaminpolak during the Fall '08 term at Yale.

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problemset8 - Problem Set 8 Econ 159a/MGT522a Ben Polak...

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