In Homework 1, we saw that there is no strict dominant strategy equilibrium in an inspection game. Thus, the players must randomize and play a mixed strategy in equilibrium. Suppose the agent shirks with probability p₁ and works with probability (1P₁), while the principal inspects with probability p2 and does not inspect with probability (1p2). Find the mixed strategy equilibrium for this game. NI I (0,-k) (w,-w) W(wc, p-w – k) | (w – c, p− w) Table 1: Payoff matrix for the inspection game S

In Homework 1, we saw that there is no strict dominant strategy equilibrium in an inspection game. Thus, the players must randomize and play a mixed strategy in equilibrium. Suppose the agent shirks with probability p₁ and works with probability (1P₁), while the principal inspects with probability p2 and does not inspect with probability (1p2). Find the mixed strategy equilibrium for this game. NI I (0,-k) (w,-w) W(wc, p-w – k) | (w – c, p− w) Table 1: Payoff matrix for the inspection game S

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.3P

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