Consider a V-period alternating-offer bargaining game where two players bargain over a surplus initially equal to a whole-number amount V. That is, player 1 makes an offer in period 1; if player 2 rejects this offer, player 2 makes an offer in period 2; if player 1 rejects this offer, player 1 then makes another offer in period 3; and so on. Suppose that the available surplus decays by a constant value of c = 1 each period. (For example, if the players reach an agreement in period 2, they divide a surplus of V – 1.) If in period V, no agreement is reached, then both players get 0. Suppose that the players don't discount the future. Describe the subgame perfect Nash equilibrium of this game.

Consider a V-period alternating-offer bargaining game where two players bargain over a surplus initially equal to a whole-number amount V. That is, player 1 makes an offer in period 1; if player 2 rejects this offer, player 2 makes an offer in period 2; if player 1 rejects this offer, player 1 then makes another offer in period 3; and so on. Suppose that the available surplus decays by a constant value of c = 1 each period. (For example, if the players reach an agreement in period 2, they divide a surplus of V – 1.) If in period V, no agreement is reached, then both players get 0. Suppose that the players don't discount the future. Describe the subgame perfect Nash equilibrium of this game.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.12P

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