2. Consider the overlapping generations model that was discussed in e lectures (please see lecture notes for details). Let u(x, y) denote the gent's utility from consuming z when young and y when old. Assume that (2, 1) = 5, u(1, 1) = 4, u(2,0) = 3, u(1,0) = 2. a) Show that there exists a subgame perfect equilibrium where each agent onsumes (1,1) and gets lifetime utility 4 when every agent observes the tire history of past transfers. b) Suppose that each agent t only observes the transfer of the previous gent t - 1. Show that there is a Nash equilibrium which supports the outcome where every agent transfers 1. An equilibrium is sequentially rational if it prescribes optimal choices

2. Consider the overlapping generations model that was discussed in e lectures (please see lecture notes for details). Let u(x, y) denote the gent's utility from consuming z when young and y when old. Assume that (2, 1) = 5, u(1, 1) = 4, u(2,0) = 3, u(1,0) = 2. a) Show that there exists a subgame perfect equilibrium where each agent onsumes (1,1) and gets lifetime utility 4 when every agent observes the tire history of past transfers. b) Suppose that each agent t only observes the transfer of the previous gent t - 1. Show that there is a Nash equilibrium which supports the outcome where every agent transfers 1. An equilibrium is sequentially rational if it prescribes optimal choices

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.7P

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