Economics Homework Help

I apologize for the confusion this may have caused. Please note that equation (8.1) comes directly from equation (6), so there should be no change in signs. The sign in front of the terms involving h_B in (8.1) should be minus, not plus. The same is true for (8.2): the sign in front of the terms involving h_A should be minus, not plus. Please make these corrections in your copy of the handout.

Lucy also asked a good question about the meaning of S on the first page of the handout, which covers Nash Bargaining, and the meaning of S on the second page, which covers PRT. The meaning of S is the same in both contexts – it is joint surplus – but the situations are different. Equation (2) on the first page holds for a case where there is no investment, or the investment is fixed and not a choice variable, as in the example of Ahn and Bo at the bottom of the first page. In equation (1) on page 2, the expression for S is for a case that does involve investments as choice variables. So equations (8.1) and (8.2) on page 3 derive from equation (1) on page 2, not equation (2) on the first page.