Tarah is the principal in a firm. She can choose to work on Project 1 (P1) or Project 2 (P2). Having observed her principal's choice, and agent Nicky can choose to also work on either P1 or P2. Following this, the payoffs accrue to both parties. If they both chose to work on P1 the payoffs are (20, 10) for Tarah and Nicky, respectively. If both parties chose to work on P2, the payoffs are (15, 20). If one party decided to work on P1 and the other on P2, the payoffs are zero to each player.

a. Draw the extensive form of this game. What is the subgame perfect equilibrium?

b. Comment on the implications for the Coase theorem of this game.