Consider a 3-period sequential (alternating) bar- gaining model where two players have to split a pie worth 1 (starting with player 1 making the offer). Now the players have different discount factors, δ1 and δ2.

(a) Compute the outcome of the unique subgame perfect equilibrium. (b) Show that when δ1 = δ2 then player 1 has an advantage.

(c) What conditions on δ1,δ2 give player 2 an advantage? Why?

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a Consider the following finite horizon bargaining game I Two players i 1 2 are trying to allocate 1 ... View the full answer