Jim and Kate are the founders of MetaSMART company. They agree on a corporate governance scheme between them: Only Jim can propose any proposal, and only Kate can then decide to pass the proposal or reject it.

Assume there are two potential projects X and Y that are known to both partners. Their preference rankings below are common knowledge to each other: The preference ranking of Jim is Take project X>take both projects> take neither project>take project Y.

The preference ranking of Kate is Take project Y>take both projects> take neither project>take project X.

(a) Interpret the context as a game between Jim and Kate, illustrate and analyse the game. (Hint: Interpret is to identify the key components that a reader needs to know about the game, such as the players, available strategies, and payoffs) [Word limit= 300 (excluding reference and figures)]

(35 marks)

(b) Assume the scheme is changed so that Kate can decide part of the proposal (e.g., when Jim proposes both X and Y, Kate can pass Y and deny X). Explain the changes in game caused by the new scheme and discuss whether Kate is better off in the new scheme. [Word limit= 300 (excluding reference and figures)]

(25 marks)