state O1 lad an eXtra 00 III tax ue In tne last year. The Governor and the Speaker of the State House are discussing how to spend it. Both will have to agree on any proposal, and nothing is spent until they agree. The Governor wants to spend all the excess money on public safety by hiring more police officers etc. The Speaker wants to spend all the excess money on improving education. They can divide the money however they wish. Each gets utility equal to the amount of money spent on their preferred project. So, if 300 million goes to public safety, the Governor would get 300 utility and the Speaker would get 200. Assume the Governor has a discount rate of 0.7, while the Speaker has a discount rate or 0.9. Develop a Rubinstein bargaining game to determine how the money will be divided. (Assume the Governor makes the first offer). Draw the game, and then solve it. How much money will be devoted to each program?

state O1 lad an eXtra 00 III tax ue In tne last year. The Governor and the Speaker of the State House are discussing how to spend it. Both will have to agree on any proposal, and nothing is spent until they agree. The Governor wants to spend all the excess money on public safety by hiring more police officers etc. The Speaker wants to spend all the excess money on improving education. They can divide the money however they wish. Each gets utility equal to the amount of money spent on their preferred project. So, if 300 million goes to public safety, the Governor would get 300 utility and the Speaker would get 200. Assume the Governor has a discount rate of 0.7, while the Speaker has a discount rate or 0.9. Develop a Rubinstein bargaining game to determine how the money will be divided. (Assume the Governor makes the first offer). Draw the game, and then solve it. How much money will be devoted to each program?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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