This homework tries to get a little deeper at the Efficiency Principle that is articulated in Milgrom and Roberts. In particular, if two parties acting independently would produce a joint outcome that is not efficient, and they both know that so they have an incentive to negotiate a deal that would be efficient, does that mean a deal will get done? The homework looks at some simple game theory to consider this question.
Note that we only consider the issue when there are two parties. We don't model what happens when there are 3 or more people who must agree to the bargain. Coordination becomes an issue with larger numbers of people. We will consider coordination question separately in the next homework.
As always, if you have questions about the homework, please post them as a comment to this post.
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