Answer to Question #121863 in Economics for Ruby vohra

Question

1. Consider the following game: Jerry (player 1) works as a sales executive for George (player 2) who owns a pharmaceutical company. Jerry can either shirk (S) or work (W). Working costs Jerry ‘g’ and produces sales revenue of ‘v’ for George. George can either choose to inspect (I) or not inspect (NI). An inspection costs ‘h’ to George but provides evidence of whether Jerry shirks. George pays a wage ‘w’ to Jerry unless he has evidence that Jerry has shirked in which case Jerry gets 0. Both the players choose their strategies simultaneously. Assume w > g > h > 0.
(a) Write down the normal form representation of this game and solve for the Pure Strategies Nash Equilibrium.
(b) Is there a mixed-strategy Nash Equilibrium in this game? If yes, then provide workings in support of your answer. [

Answer 1

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