Now suppose agent C can produce private information about the true realization x at t=1 at the cost γ. Suppose lA=lB=φA=φB=1. Suppose γ=4.- Suppose agent B proposes to borrow LB=50 by posting the bond. Does agent C always lend?- What is the maximum amount LB that agent B can borrow with probability 1? What is the haircut? Consider an exchange economy with three dates {t=0, 1, 2} and three agents {A, B, C} withutility functions:UA=CA0 + (1-lA)( CAi+ CA2)UB=CB0+CB1+ (1-/B)CB2Uc=Ccot Cci+ Cc2The agents have the following endowments. Agent A owns a bond at t=0 and obtains w at t=1with probability (1-QA). Agent B owns w at t=0 and obtains w at t=2 with probability (1-QB).Agent C owns w at t=1 and nothing at the other dates. Furthermore, the bond pays off x at t=2.The risk free rate and repo rate are zero.Suppose x is either 0 or 100 with equal probability and w=50.Suppose la=lg=QA=QB=1 for questions (a) to (c).

The expected value of an outcome is the value of the outcome in the long period of time that the…

Answered: Now suppose agent C can produce private…

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Now suppose agent C can produce private information about the true realization x at t=1 at the cost γ. Suppose l_A=l_B=φ_A=φ_B=1. Suppose γ=4.

- Suppose agent B proposes to borrow L_B=50 by posting the bond. Does agent C always lend?

- What is the maximum amount L_B that agent B can borrow with probability 1? What is the haircut?

Consider an exchange economy with three dates {t=0, 1, 2} and three agents {A, B, C} with
utility functions:
UA=CA0 + (1-lA)( CAi+ CA2)
UB=CB0+CB1+ (1-/B)CB2
Uc=Ccot Cci+ Cc2
The agents have the following endowments. Agent A owns a bond at t=0 and obtains w at t=1
with probability (1-QA). Agent B owns w at t=0 and obtains w at t=2 with probability (1-QB).
Agent C owns w at t=1 and nothing at the other dates. Furthermore, the bond pays off x at t=2.
The risk free rate and repo rate are zero.
Suppose x is either 0 or 100 with equal probability and w=50.
Suppose la=lg=QA=QB=1 for questions (a) to (c).

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