Return to the game with two neighbors in Problem 8.4. Continue to suppose that player i’s average benefit per hour of work on landscaping is 10 2 li 1 lj 2

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Continue to suppose that player 2’s opportunity cost of an hour of landscaping work is 4. Suppose that player 1’s opportunity cost is either 3 or 5 with equal probability and that this cost is player 1’s private information.

a. Solve for the Bayesian–Nash equilibrium.

b. Indicate the Bayesian–Nash equilibrium on a bestresponse function diagram.

c. Which type of player 1 would like to send a truthful signal to player 2 if it could? Which type would like to hide his or her private information?