Question
Suppose that Tom and Jerry form a production team. They can choose to Work Hard or Shirk during the team production. Choosing Work hard incurs
Suppose that Tom and Jerry form a production team. They can choose to "Work Hard" or "Shirk" during the team production. Choosing "Work hard" incurs a cost of $5 to an individual, but can increase the final output by $8. Choosing "Shirking" incurs no cost, but does not increase the final output either. If both choose "Shirking", then the value of the total output is 0. Suppose that the working effort during production, hereby individual's contribution to the final output cannot be observed. Whatever the value of the final output is, Tom and Jerry will split it in half. a.Write down the Two-way Payoff Table of the game between Tom and Jerry. b. Is there any Dominant Strategy for Tom? How about Jerry? c.What is the Nash Equilibrium of this game? Why? d.What is the Cooperative Solution of this game? Is it easy for Tom and Jerry to achieve such an outcome? Why? e. Based on the analysis above, why do you think, under some certain circumstances, shirking is inevitable in a team-work environment? (Hint: Pay attention to the key assumption made in the question. Why do you think this assumption might hold inmany cases in reality? )
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