Worn out by the voluminous assignments in their Law and Economics class, a group of students agree to share the load. They promise to cooperate in preparing cases, working problem sets and sharing notes. Each agrees to work for 4 hours per week. They think that this will save everyone a total of 3 hours per week. That is, without the cooperation they would expect to work 7 hours per week.
Here are their estimates of the payoffs in the situations that may occur.
Work Payoff (7-work)
Suckee (use work of others and contribute nothing) 2 hours
Cooperative equilibrium (everyone works and shares) 4 hours
Non-cooperative equilibrium (no sharing) 7 hours
Sucker (work and share but receive nothing) 8 hours
Each party would like to work as few hours as possible.
I. Suppose they interact only once.
a. What is the extra payoff to cheating on the cooperative agreement?
b. What is the best response to the expectation that all others will cooperate?
c. What is the best response to the expectation that all others will not copperate?
d. What is the outcome of this game?