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Respond to the question: Equilibrium in a dynamic game with incom?

01/20/2018 07:03 AM by Nikita Ivanov; Equilibrium in a dynamic game with incomplete information (aka signalling)

Dear friends,

I have troubles solving the following problem:

There are a taxpayer and an inspector. The taxpayer receives income y, drawn from some distribution and decides her tax declaration size - d.

The inspector receives taxpayer's declaration and decides whether to audit or not. Doing audit costs - c. If the inspector does audit, she charges taxpayer with penalty - f on the difference between his true income and the declared one.

Could you please provide some advice on how to find NE in this game? [Manage messages]