Question

HW1. Wendy and Xavier are siblings who have inherited a house from their parents. They are not willing to share the house (growing up together was enough), so one or the other will receive it when their parents’ estate is settled. This is the only item which they have inherited, and they apply the Method of Sealed Bids to obtain a fair distribution. Wendy considers the house worth $300,000, but Xavier considers it worth $350,000. a. Find the value of each player’s minimum fair share, in dollars. b. Carry out the allocation of the items (of which there is only one), and the first settlement.

Answer 1

Answer:

A. Wendy $150,000

Xavier $175,000

B.Wendy has no Items received and their value

Wendy has no initially paid to bank account

Wendy initially received from bank account $150,000

Xavier item received and their value is house

Xavier initially paid to bank account $350,000-$175,000=$175,000

Xavier has no initially received from bank account

Explanation:

A.

$300,000/2

Wendy $150,000

Xavier

$350,000/2

=$175,000

Therefore the value of each player’s minimum fair share is $150,000 because there are 2 players. Hence Wendy’s minimum fair share amount equals her total valuation of all the goods which is why Wendy is entitled to at least half the value of all the goods,

While Xavier’s minimum fair share amount is $175,000

B

Wendy has no Items received and their value

Wendy has no initially paid to bank account

Wendy initially received from bank account $150,000

Xavier item received and their value is house

Xavier initially paid to bank account $350,000-$175,000=$175,000

Xavier has no initially received from bank account