me, generated by their economic activity. Assume that the benefits are equal to 2 million euros. The game has three stages. Offers are alternating between F, S and F. In each stage, the player who has not offered how to share the benefits has the choice of accepting or rejecting the proposal made by the other player. If she accepts the proposal, the game ends and if she rejects, in the next stage, she will become the proposer. If the players do not reach any agreement, after the third proposal, both of them get a zero payoff. a) What will be agreement reached in equilibrium and in which time period will the agreement be reach if the discount factor of both players is 8 = 1/4? b) What will be agreement reached in equilibrium and in which time period will the agreement be reach if F has a discount factor &F = 1/4 and S has ds = 1/2? c) Compare the two agreements and try to provide an intuitive argument to support the results you have found.

me, generated by their economic activity. Assume that the benefits are equal to 2 million euros. The game has three stages. Offers are alternating between F, S and F. In each stage, the player who has not offered how to share the benefits has the choice of accepting or rejecting the proposal made by the other player. If she accepts the proposal, the game ends and if she rejects, in the next stage, she will become the proposer. If the players do not reach any agreement, after the third proposal, both of them get a zero payoff. a) What will be agreement reached in equilibrium and in which time period will the agreement be reach if the discount factor of both players is 8 = 1/4? b) What will be agreement reached in equilibrium and in which time period will the agreement be reach if F has a discount factor &F = 1/4 and S has ds = 1/2? c) Compare the two agreements and try to provide an intuitive argument to support the results you have found.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.7P

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