Consider a bargaing game with alternating offers with two players: In each round, one player makes a proposal how a pie of size 1 should be divided. Divisions are denoted (1, 2) where x1 and 2 are the shares of the two players. Player 1 has a constant discount rate of $1 and player 2 has a constant discount rate of 82 = 7. = Different from the standard model, we consider the case where player 2 can choose an outside option after player 1 has made an offer and that offer was rejected by player 2. If player 2 chooses the outside option, player 2 obtains band player 1 obtains nothing. a. How much will player 1 demand for themself in the first round? b. How much will player 1 offer to player 2 in the first round?

Consider a bargaing game with alternating offers with two players: In each round, one player makes a proposal how a pie of size 1 should be divided. Divisions are denoted (1, 2) where x1 and 2 are the shares of the two players. Player 1 has a constant discount rate of $1 and player 2 has a constant discount rate of 82 = 7. = Different from the standard model, we consider the case where player 2 can choose an outside option after player 1 has made an offer and that offer was rejected by player 2. If player 2 chooses the outside option, player 2 obtains band player 1 obtains nothing. a. How much will player 1 demand for themself in the first round? b. How much will player 1 offer to player 2 in the first round?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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