Problem 8.2 Consider the screening model depicted in Figure 8.2(i).

(a)

(b)

(c)

Show that for this model there is no Nash equilibrium under separating contracts.

There is no Nash equilibrium under either pooling or separating contracts for this model. Explain what is meant by the Wilson equilibrium and apply it to the model in Figure 8.2(i).

Explain what is meant by the Reactive equilibrium and apply it to the model in Figure 8.2(i).