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Question: In the grim trigger example of the text, show that if the discount rate is low enough it pays the potential cheater to adhere to the agreement for two (or more) periods rather than break it in the first period. Extra credit: Calculate the maximum discount rate at which she will keep to the agreement for two periods rather than just one. What happens to the incentive to cheat as a person's discount rate approaches zero?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M93111328

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