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Respond to the question: gane theory bargaining?

12/05/2012 10:22 AM by Giorgio; gane theory - bargaining

Could somebody help me with my game theory homework? :-))

Consider the 2-person Rubinstein model (risk-neutral players dividing a pie) with an outside option. Suppose that there is an ”exogenous risk of breakdown” of renegotiation. At each period t, assuming that bargaining has gone on up to date t, there is probability (1−x) that bargainingn breaks down at the end of period t if the period-t offer is turned down. The players then get x0 each. Compute the subgame perfect equilibrium and show that the ”outside opportunity” x0 matters even if it is small. [Manage messages]