following out-of-equilibrium signals, i.e., any beliefs are admissible if an out-
of-equilibrium outcome is observed.
Separating equilibrium
In a separating equilibrium, the high cost type succeeds in separating from the
low cost type, and is, therefore, always recognized as a high cost type, while the
low cost type is revealed as a low cost type. In order to fully describe the set of
possible separating equilibrium outcomes, it is assumed that out-of equilibrium
signals are followed by the most unfavorable beliefs seen from the informed
country’s point of view, i.e., if qθ ≠ qH then ρ(qθ) = 1.
Given these beliefs, a sufficient condition for a strategy pair to form a separat-
ing equilibrium is that the following conditions for a separating equilibrium be
satisfied:
NBi(Η,q,Η 0) ≥ NB,(H,q(Hfi)J)
(4.a)
(4.b)
NBi(L,q,H,0) ≤ NB,(L.q(LJ)J)
In order to describe the set of separating equilibrium outcomes, it will be useful
to define the following two sets:
RiH = {qi* ∈ Qi | NBi(H,qi*,0) ≥ NBi(H,q(H,0),1)}, which describes the set of qi
that satisfies (4.a) and RiL = {qi* ∈ Qi | NBi(L,qi*,0) ≤ NBi(L,q(L,1),1)}, which is
the set of qi that satisfies (4.b). The intersection of these two sets is given by
RSL ={qi | qi ∈ RL ∩RH } .
The set of separating equilibrium outcomes is given by:
qiH ∈ Rsl (5.a)
qL = qi(Li) (5.b)
19
More intriguing information
1. The name is absent2. The fundamental determinants of financial integration in the European Union
3. The name is absent
4. Migration and employment status during the turbulent nineties in Sweden
5. THE AUTONOMOUS SYSTEMS LABORATORY
6. IMMIGRATION AND AGRICULTURAL LABOR POLICIES
7. The name is absent
8. The name is absent
9. Eigentumsrechtliche Dezentralisierung und institutioneller Wettbewerb
10. Improving Business Cycle Forecasts’ Accuracy - What Can We Learn from Past Errors?