0
$\begingroup$

A farmer has talent $\theta$ uniformly distributed on $[0,1]$. His payoff from farming his land is $\theta.$ Before setting up his farm, he chooses some $w\geq0$, which a plant owner can either accept or reject. If the owner rejects, then the farmer farms on his own, and the owner gets 0. If the owner accepts, then the farmer's payoff is $w$, while the owner's is $\frac{3}{2}\theta-w$.

I have found the following BNE: farmer offers some $w\geq\theta$ and the owner rejects all offers. Do others arrive at this as well? Thank you.

$\endgroup$
9
  • $\begingroup$ Does the farmer offer $w$ before or after she knows what $\theta$ is? $\endgroup$ – Walrasian Auctioneer Jun 2 '20 at 19:27
  • $\begingroup$ @WalrasianAuctioneer After she knows what $\theta$ is. $\endgroup$ – Charles Jun 2 '20 at 20:30
  • $\begingroup$ What is the owner's payoff if they reject? $\endgroup$ – Kitsune Cavalry Jun 3 '20 at 0:01
  • $\begingroup$ @KitsuneCavalry 0. $\endgroup$ – Charles Jun 3 '20 at 2:02
  • $\begingroup$ Another BNE (and infact a PBE) is one where a type $\theta$ farmer offers $w = \frac{3}{2}\theta$ and the owner always accepts. $\endgroup$ – Walrasian Auctioneer Jun 3 '20 at 2:21

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.