Question
The NSW government and the union for Sydney trains are negotiating the annual wage growth rate (ranging between 0 to 0.1) for the railway workers
The NSW government and the union for Sydney trains are negotiating the annual wage growth rate (ranging between 0 to 0.1) for the railway workers in a sequential bargaining game over four days, as described below. If the wage growth rate is set at x, the government receives a base payoff of -100x and the union receives a base payoff of 100x-5. For each day that the Sydney train services stop working, the government's payoff decreases by 2, and the union's payoff increases by 1. Payoffs from future periods are undiscounted for both the government and the union.
On the morning of day 1, the government chooses a wage growth rate x1 from the interval [0, 0.1]. The union either accepts or rejects. The game ends if the union accepts. If the union rejects, all Sydney train services will stop for one day, and the game continues.
If the game continues on day 2, the union chooses a wage growth rate x2 from the interval [0, 0.1]. The government either accepts or rejects it. The game ends if the government accepts. If the government rejects it, all Sydney train services will stop for another day, and the game continues.
If the game continues on day 3, the government chooses a wage growth rate x3 from the interval [0, 0.1]. The union either accepts or rejects. The game ends if the union accepts. If the union rejects, all Sydney train services will stop for another day, and the game continues.
If the game continues on day 4, the government will fire the current railway workers and seek a private company to run all Sydney trains. In this scandalous event, the total payoff for the government is -8, and the total payoff for the union is -2.
Find the values of x1, x2, x3 in a subgame-perfect equilibrium. On which day does the game end? How does your answer change if the government's total payoff on day 4 becomes -80 instead of -8?
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Find the values of x 1 x 2 x 3 in a sub game perfect equilibrium ANS WER x 1 0 05 x 2 0 05 x 3 0 05 WORK ING The government s optimal strategy is to o...Get Instant Access to Expert-Tailored Solutions
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