Question

In: Economics

In the managerial solution safety game, could cheap talk lead both firms to invest in safety?...

In the managerial solution safety game, could cheap talk lead both firms to invest in safety? Why or why not? What is the minimum fine that the government could levy on firms that do not invest in safety that would lead to a Nash equilibrium in which both firms invest?

Solutions

Expert Solution

ANSWER:

Firms that take part in modest talk endeavor to convey before the game starts. This correspondence doesn't straightforwardly influence the adjustments. At whatever point the organizations take part in such cooperation, the minor correspondence doesn't really infer that organizations are concurring on explicit arrangement of techniques. Firms infrequently settle on such legitimate understandings in reality.

In any case, the model shows that if modest talk is conceivable, both the firms will move from the first Nash- equilibrium of not contributing to contributing. In spite of the fact that it's anything but a prevailing methodology for any of the firm, yet by shared accord, they can accomplish a higher result equilibrium .

gains an extra benefit of $100 when it chooses not to contributes. Thus, a fine of more than $100 on firm 1 and firm 2 for not contributing will constrain it to contribute.

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