Answer to Question #192914 in Economics for Somy

Question

A clerk is considering whether to accept a gift (bribe) for a task he completed. With probability p the person offering the bribe is friendly and gives the gift in gratitude for the received help. If the clerk accepts the gift in this case, both the clerk and the giver are satisfied, and each of them receives a payoff of 1. If the clerk refuses the gift in this situation, then his payoff is 0, while the giver experiences some discomfort and his payoff is -1. With probability 1 – p, the giver is hostile, and if the clerk accepts the gift, the giver will inform the prosecutor. The giver’s payoff will be then 1, and the payoff of the clerk -1. If the clerk rejects the offer in this case, the payoffs are the same as when the giver is friendly. The giver can also decide not to offer the gift, and then each of them receives a payoff of 0.

a) Present this game in the extensive form.

b) Present this game in the normal form.

c) Determine pure-strategy NE and SPNE.

Answer 1

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