1. [10 points] Provide an intuitive description of a NASH
equilibrium and compute

the NASH equilibrium of the following game with
simultaneous moves

2. [20 Points] The Principal-Agent Problem

i. Provide an intuitive explanation of the
Principle-Agent problem and discuss

any mechanisms used to mitigate the problem. Initially,
you should use the

business owner-manager problem as an illustration.

ii. Then, discuss the Principle-Agent problem (and the
related concept of “moral

hazard”), and any mechanisms used to mitigate the
problem, in the context

of the healthcare industry (the interaction of consumers,
hospitals/doctors,

and health insurance companies).

3. [20 Points] The Adverse-Selection Problem

i. Provide and intuitive explanation of the Adverse
Selection problem and

discuss its implications and any mechanisms used to
mitigate the problem.

You should use the healthcare industry as an
illustration.

ii. A key elements of Obama Care is the “individual
mandate” (everyone is

required to have health insurance). Is this likely to
increase or decrease

health insurance premiums? How is this likely to affect
the consumption of

healthcare? Provide an intuitive explanation for your
answers.

3 , 5 0 , 3

1 , 0 2 , 2

5 , 1

3 , 0

5 , 3 0 , 1 1 , 5

X Y Z

A

B

C

Player 2

Player
1