What outcome maximizes the joint value

Assignment Help Business Management

Reference no: EM131250354

Here is a description of interaction between two players who are considering a possible business partnership. First the players simultaneously choose whether to make an investment. Investment entails a personal cost of 3; not investing costs nothing. The investment choices become common knowledge. Then the players jointly decide whether to form a partnership firm and, if so, how to divide the profit from the firm. If both players invested, then the firm's profit is 16.

If exactly one player invested or if neither invested, then the firm's profit is 12. If the players decide not to form the firm, then each player i gets a default payoff of x - 3 if player i invested and zero if player i did not invest. The default payoff of x - 3 includes the cost of investment plus some value x that represents what player i can obtain by using his investment in other endeavors. Assume that the players divide surplus according to the standard bargaining solution with equal bargaining weights.

(a) What outcome maximizes the joint value? That is, what are the efficient investment choices?

(b) Describe conditions on x such that there is a negotiation equilibrium in which both players invest. Show that this is an equilibrium.

(c) In light of your answers to parts (a) and (b), briefly provide some intuition for your answers in relation to the "hold-up" problem.

Reference no: EM131250354

Questions Cloud

Discuss verifiability and incentives : Describe conditions under which it is best that you, rather than your employer, own the computer. Discuss verifiability and incentives in your answer.

Examples of potentially discriminatory practices : Explain and provide examples of potentially discriminatory practices concerning recruitment and selection standards. Must be at least 200 words.

What the lessons of the vietnam war are : What the lessons of the Vietnam War are? Are these lessons still relevant for more recent U.S. military engagements abroad? Give an example.

Percentage of the workforce in the private sector : Unions have declined as a percentage of the workforce in the private sector. With this decline, have career and workplace dissatisfaction and alienation increased? If so, why is this so? If not, why not? Support your position.

What outcome maximizes the joint value : What outcome maximizes the joint value? That is, what are the efficient investment choices? - Describe conditions on x such that there is a negotiation equilibrium in which both players invest. Show that this is an equilibrium.

How did it inspire you or not - songcatcher : You should comment on whatever is most significant for you, what will you remember about the film a year from now, how did it inspire you (or not).

What is the workers investment decision : In a negotiation equilibrium, what is the worker's investment decision and what is the outcome of the negotiation? Explain. - Is the outcome you found in part (a) efficient? Explain why or why not.

Potent sources of information : Draw up a list of the five most potent sources of information that you will integrate to help distinguish between successful and unsuccessful candidates?

Has your learning this week helped dispel assumptions : Do you hold, or have you held, assumptions about the elderly? Has your learning this week helped dispel assumptions? If so, which ones? Why is it vital to dispel such assumptions and never give up on yourself or your learners, no matter how old?

User Account

All Pages