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econ440640pset3spr2012

econ440640pset3spr2012

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Published by: Bharavi Kothapalli on May 05, 2013
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Economics 440/640 Problem Set 3
Due 4/2/2012You are allowed to work in groups of up to four people. Only one problem set copy needsto be turned in per group. If you have any questions please email me or stop by my office.
Gibbons Questions
4.1b
4.3a
4.4
4.8
Optional
: 4.11 (worth 8 points)
Additional questions
Question 1. Bargaining with Incomplete Information.
Consider a buyer and a seller.The seller owns an object, whose value for himself is
0
. The value of the object for thebuyer is
v
{
1
,
2
}
. The seller believes that
v
= 2
with probability
π
= 0
.
8
, while thebuyer knows what
v
is. We have two dates,
t
= 0
,
1
. The players discount the futurepayoffs with
δ 
=
.
9
. Hence, if they trade at
t
= 0
with price
p
, the payoffs of seller andthe buyer are
p
and
v
p
, respectively, while these payos would be
0
.
9
 p
and
0
.
9(
v
p
)
,respectively, if they traded at
t
= 1
. If the do not trade at any of these dates, each gets0. For the two bargaining procedures below, find the perfect Bayesian Nash equilibrium of the game.
A)
At
t
= 0
, the buyer offers a price
p
0
. If the seller accepts, trade occurs at price
p
0
.If the seller rejects, at
t
= 1
, the seller sets another price
p
1
. If the buyer accepts theprice, the trade occurs at price
p
1
; otherwise they do not trade.
B)
At
t
= 0
, the buyer offers a price
p
0
. If the seller accepts, trade occurs at price
p
0
.If the seller rejects, at
t
= 1
, the buyer sets another price
p
1
. If the seller accepts theprice, the trade occurs at price
p
1
; otherwise they do not trade.
Question 2. Incomplete information.
For signalling games where player 1 has privateinformation,
A)
Are there situations in which player 1 would want to be able to commit to reveal herprivate information
ex ante
(i.e., before she learns her own type)?1

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