Consider a bilateral relationship between an employer and employee, where the output of the firm,q, depends on the effort level, e, exerted by the worker. The probability of occurring is conditionalon the effort level of the worker, i.e. Prob = [q = q¡le] = P;(q)V i = {1,2,.,n}. The employerhas a VNM utility function given by G(q – w). where W is the wage paid to the worker, while theworker's VNM utility function is given by U(w, e) = u(w) – d(e). The worker has a fallbackutility of U.What does it mean to say that information about the worker's effort level is symmetric?b. Solve the employer's maximization problem when information is symmetric. In youranswer motivate why the participation constraint binds.c. If information is symmetric, what type of contract should the employer offer if (i) he isrisk neutral and the worker is risk averse; (ii) if he is risk averse and the worker is riskа.neutral Two taxi drivers, Row and Column, are driving toward each other on a one-lane road. Eachdriver chooses simultaneously between going straight (S), swerving left (L), and swerving right(R). If one driver goes straight while the other swerves, either right or left, the one who goesstraight gets payoff 3 while the other gets -1. If each driver swerves to his left, or each swerve tohis right, then each gets 0 (remember, they are going in opposite directions). If both go straight, orif one swerves to his left while the other swerves to his right, then the cars crash and each getsраyoff -4.a. Write the payoff matrix for this gameb. Find all of the game's Nash equilibria in pure strategies.

Row / column S L R S (-4,-4) (3,-1) (3,-1) L (-1,3) (0,0) (-4,-4) R (-1,3) (-4,-4) (0,0)

Two taxi drivers, Row and Column, are driving toward each other on a one-lane road. Each driver chooses simultaneously between going straight (S), swerving left (L), and swerving right (R). If one driver goes straight while the other swerves, either right or left, the one who goes straight gets payoff 3 while the other gets -1. If each driver swerves to his left, or each swerve to his right, then each gets 0 (remember, they are going in opposite directions). If both go straight, or if one swerves to his left while the other swerves to his right, then the cars crash and each gets payoff -4. a. Write the payoff matrix for this game b. Find all of the game's Nash equilibria in pure strategies.

Two taxi drivers, Row and Column, are driving toward each other on a one-lane road. Each driver chooses simultaneously between going straight (S), swerving left (L), and swerving right (R). If one driver goes straight while the other swerves, either right or left, the one who goes straight gets payoff 3 while the other gets -1. If each driver swerves to his left, or each swerve to his right, then each gets 0 (remember, they are going in opposite directions). If both go straight, or if one swerves to his left while the other swerves to his right, then the cars crash and each gets payoff -4. a. Write the payoff matrix for this game b. Find all of the game's Nash equilibria in pure strategies.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.9P

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