Two neighboring nations (A and B) are deciding whether to restrict environmental pollution within their own country. Suc

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Two Neighboring Nations A And B Are Deciding Whether To Restrict Environmental Pollution Within Their Own Country Suc 1 (29.4 KiB) Viewed 29 times

Two neighboring nations (A and B) are deciding whether to restrict environmental pollution within their own country. Such restrictions hurt the local economy (by 10) but benefit the neighboring country (by 12). The resulting game is: Nation B Restrict 20, 20 30, 8 Pollute 8,30 18, 18 Restrict Pollute Nation A a. What makes a game a prisoner's dilemma? Formally confirm that this game is a prisoner's dilemma. b. Imagine that the two firms play this game repeatedly and forever with each using the grim trigger strategy. For what range of interest rates would we expect cooperation? (Compare the payoffs of cooperation to the payoffs of deviating in the first round). c. Imagine that the two firms play this game repeatedly and forever with each using the tit for tat strategy. For what range of interest rates would we expect cooperation? (Compare the payoffs of cooperation to the payoffs of deviating once in the first round, and then working to get back on track).