Consider the following strategic situation concerning the owner of a firm (O), the manager of the...

 

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Consider the following strategic situation concerning the owner of a firm (O), the manager of the firm (M), and a potential worker (W). The owner first decides whether to hire the worker, to refuse to hire the worker, or to let the manger make the decision. If the owner lets the manager make the decision, then the manager must choose between hiring the worker or not hiring the worker. If the worker is hired then he or she chooses between working diligently and shirking. Assume that the worker does not know whether he or she was hired by the manager or the owner when he or she makes this decision. If the worker is not hired, then all three payers get a payoff of 0. If the worker is hired and shirks, then the owner and manager each get a payoff of -1, whereas the worker gets 1. If the worker is hired by the owner and works diligently, then the owner gets a payoff of 1, the manager gets 0, and the worker gets 0. If the worker is hired by the manager and works diligently, then the owner gets 0, the manager gets 1, and the worker gets 1. Represent this game in the extensive form (draw the game tree). O, M, W 1,0, 0 D. (diligent) S h -1, -1, 1 (shirking) D 0, 1, 1 (diligent) H" (hire) (hire) M -1, -1, 1 (manager decides) (shirking) N' 0, 0, 0 (not) (not hire) 0, 0, 0 Consider the following strategic situation concerning the owner of a firm (O), the manager of the firm (M), and a potential worker (W). The owner first decides whether to hire the worker, to refuse to hire the worker, or to let the manger make the decision. If the owner lets the manager make the decision, then the manager must choose between hiring the worker or not hiring the worker. If the worker is hired then he or she chooses between working diligently and shirking. Assume that the worker does not know whether he or she was hired by the manager or the owner when he or she makes this decision. If the worker is not hired, then all three payers get a payoff of 0. If the worker is hired and shirks, then the owner and manager each get a payoff of -1, whereas the worker gets 1. If the worker is hired by the owner and works diligently, then the owner gets a payoff of 1, the manager gets 0, and the worker gets 0. If the worker is hired by the manager and works diligently, then the owner gets 0, the manager gets 1, and the worker gets 1. Represent this game in the extensive form (draw the game tree). O, M, W 1,0, 0 D. (diligent) S h -1, -1, 1 (shirking) D 0, 1, 1 (diligent) H" (hire) (hire) M -1, -1, 1 (manager decides) (shirking) N' 0, 0, 0 (not) (not hire) 0, 0, 0