2. Consider the overlapping generations model that was discussed in e lectures (please see lecture notes for details). Let u(x, y) denote the gent's utility from consuming z when young and y when old. Assume that (2, 1) = 5, u(1, 1) = 4, u(2,0) = 3, u(1,0) = 2. a) Show that there exists a subgame perfect equilibrium where each agent onsumes (1,1) and gets lifetime utility 4 when every agent observes the tire history of past transfers. b) Suppose that each agent t only observes the transfer of the previous gent t - 1. Show that there is a Nash equilibrium which supports the outcome where every agent transfers 1. An equilibrium is sequentially rational if it prescribes optimal choices

2. Consider the overlapping generations model that was discussed in e lectures (please see lecture notes for details). Let u(x, y) denote the gent's utility from consuming z when young and y when old. Assume that (2, 1) = 5, u(1, 1) = 4, u(2,0) = 3, u(1,0) = 2. a) Show that there exists a subgame perfect equilibrium where each agent onsumes (1,1) and gets lifetime utility 4 when every agent observes the tire history of past transfers. b) Suppose that each agent t only observes the transfer of the previous gent t - 1. Show that there is a Nash equilibrium which supports the outcome where every agent transfers 1. An equilibrium is sequentially rational if it prescribes optimal choices

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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