Question

In: Economics

Game where someone goes first - What is backward induction One-period game , Multi-period game -...

Game where someone goes first - What is backward induction

One-period game , Multi-period game - differences

What is the principal agent problem?

Negative / positive externalities.

Public goods, private goods, club goods, common goods

Tragedy of the commons

Under-funded, Free rider

Solutions

Expert Solution

1) Game where someone goes first : Sequential game . In sequantial game one player chooses their action before the others choose theirs .

2) What is backward induction : It is the process of reasoning backwards in time . It starts from the end of a problem or situation, to retrace back a sequence of optimal actions . It proceeds by first considering the last time a decision might be made and choosing what to do in any situation at that time .

3) One-period game , Multi-period game - differences : In a multi period game the base game or stage game is repeated multiple times unlike the one period game . The player will have to take into account the impact of his or her current action on the future actions of other players .

4) What is the principal agent problem? : The principle agent problem is seen when one party (agent) agrees to work in favor of another party (principle) in return for some incentives or rewards . Such an agreement may incur huge costs for the agent , thereby leading to the problems of moral hazard and conflict of interest . The agent does not know the exact deserved reward and the principal does not know the quality of work the agent will provide .


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