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Every year management and labor negotiate a new employment contract by sending their proposalsto an arbitrator who chooses the best proposal (effectively giving one side or the other $1 million). Each side can choose to hire, or not hire, an expensive labor lawyer ( at a cost of $200,000) who is effective at preparing the proposal in the best light. If neither hires alawyers, each side can expect to win about half the time. If only one side hires a lawyer, it can expect to wim three-quarters of the time.

A. Diagram the simultaneous move game.
B. What is the Nash Equilibrium of the game?
C. Would the sides want to ban lawyers?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M940052

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