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Only part A Assume that there are three individuals and k = 1 / 3. Assume further that return on longterm investment (per unit invested

Only part A

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Assume that there are three individuals and k = 1 / 3. Assume further that return on longterm investment (per unit invested in period 0) is L = 0.8 if liquidated in period 1 and R : 2 in period 2. By pooling resources from the three individuals, in period 0 a bank can leave 1.2 units in storage and invest 1.8 units. The 1.2 units in storage can raise enough funds in period 1 to meet withdraw demand by the type1 individual. The 1.8 units invested will generate 1.8 x 2 : 3.6 units in period 2, which can be distributed between the type2 individuals with each receiving 1.80. Suppose the bank offers a deposit to the individuals that pays (1 = 1.20 if withdrawing in period 1 and 7" : 1.8 if withdrawing in period 2. If one or both type2 individuals also withdraw in period 17 the bank will try to get additional funds by liquidating investments and divide total funds (from both storage and liquidation of investments) equally among all withdrawing individuals. a) (5pt) In period 1, each of the type2 individuals can either wait (don't withdraw in period 1) or run (withdraw in period 1). Determine the payoff matrix facing type2 individuals in period 1. b) (3pt) Find the Nash equilibria for this game

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