Write the matrix representing the induced game

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Reference no: EM131251796

Consider a contractual setting in which the technology of the relationship is given by the following partnership game:

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Suppose the players contract in a setting of court-imposed breach remedies. The players can write a formal contract specifying the strategy profile they intend to play; the court observes their behavior in the underlying game and, if one or both of them cheated, imposes a breach transfer. The players wish to support the investment outcome (I, I)

(a) Write the matrix representing the induced game under the assumption that the court imposes expectation damages. Can a contract specifying (I, I) be enforced? Explain your answer.

(b) Write the matrix representing the induced game under the assumption that the court imposes restitution damages. Can a contract specifying (I, I) be enforced?

(c) Write the matrix representing the induced game under the assumption that the court imposes reliance damages. Can a contract specifying (I, I) be enforced with reliance transfers? Explain your answer.

(d) Suppose litigation is costly. When a contract is breached, each player has to pay a court fee of c in addition to the reliance transfer imposed by the court. What is the induced game in this case?

(e) Under what condition on c can (I, I) be enforced with reliance transfers and court costs?

(f) Continue to assume the setting of part (d). Suppose the court intervenes after a breach only if the plaintiff brings suit. For what values of c does the plaintiff have the incentive to sue?

(g) How does your answer to part (e) change if the court forces the losing party to pay all court costs?

Reference no: EM131251796

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