Question One (worth 12 points)

Assume that two neighbors, Alecia and Fred, share a driveway that has fallen into disrepair. Assume that the total cost of repairing the driveway is equal to $8,000.Alecia and Fred must make a decision as to whether or not to contribute to the cost of repairing the driveway.If both agree to contribute each pays half of the $8,000 cost. If one contributes and the other does not then the person who contributes pays the full $8,000. If neither contributes there is no cost to either and the driveway is not repaired.

Assume that the value of a repaired driveway is equal to $20,000 to Alecia and $10,000 to Fred. Assume that if the driveway is not repaired that there is a zero gain and a zero loss to both Alecia and Fred.

1. Find the equilibrium or equilibria if Alecia and Fred have to act simultaneously.Explain your reasoning.
2. If Alecia has to go first what will happen? Set up the game tree and explain your reasoning.

If Fred has to go first what will happen? Set up the game tree and explain your reasoning.