Altering Payoffs to Make Cooperation a Stable Equilibrium
A key strategy for resolving the climate change social dilemma is to ensure that restricting emissions is in the self-interest of every country. This can be accomplished by modifying the game's payoffs. For instance, by increasing the benefits a country receives for choosing 'Restrict' when other countries also do so, the mutually cooperative outcome (Restrict, Restrict) can be transformed into a stable Nash equilibrium.
0
1
Tags
Library Science
Economics
Economy
Introduction to Microeconomics Course
Social Science
Empirical Science
Science
CORE Econ
Ch.4 Strategic interactions and social dilemmas - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Related
US-China Joint Declaration at the 2021 Glasgow Climate Summit
Evaluating a Global Climate Accord's Effectiveness
Two countries face a strategic choice regarding emissions policy. Initially, both have a strong incentive not to restrict emissions, leading to a poor environmental outcome for both. A new international agreement is proposed that provides a 'cooperation bonus' to any country that chooses to restrict emissions. The new payoffs are represented in the matrix below (Country A's payoff, Country B's payoff).
Country B: Restrict Country B: Don't Restrict Country A: Restrict (4.5, 4.5) (2.5, 4) Country A: Don't Restrict (4, 2.5) (2, 2) Based on this new payoff structure, why is the agreement considered successful in promoting mutual cooperation?
Designing an Effective Climate Treaty
Evaluating Climate Policy Strategies
Two countries are in a strategic situation where both are incentivized to continue emitting pollutants ('Don't Restrict') rather than curbing them ('Restrict'), even though mutual restriction would be better for both. Match each policy intervention below with its primary effect on the strategic incentives, aimed at making mutual restriction a stable outcome.
For a global climate agreement to be successful in the long term, it must rely primarily on the goodwill and altruism of participating nations to overcome their individual self-interest.
For a global climate agreement to successfully overcome the social dilemma of pollution, the payoffs for participating nations must be restructured. The goal is to ensure that the outcome where all countries restrict emissions becomes a stable ______, a state from which no single nation can improve its own outcome by unilaterally changing its decision.
Imagine two countries are in a strategic situation where it is individually rational for each to pollute, leading to a poor environmental outcome for both. Arrange the following steps in the logical order a policymaker would follow to design an international agreement that successfully makes mutual emission restriction a stable, self-enforcing outcome.
Two large economies are deciding whether to restrict their carbon emissions. The payoffs for their decisions are represented in the matrix below, where the first number in each pair is the payoff for Economy A and the second is for Economy B. The current strategic situation results in a suboptimal outcome where neither economy restricts emissions because there is a strong incentive to be a 'free-rider'.
Economy B: Restrict Economy B: Don't Restrict Economy A: Restrict (5, 5) (1, 7) Economy A: Don't Restrict (7, 1) (2, 2) Which of the following policy changes would be most effective in making mutual restriction ('Restrict', 'Restrict') a stable equilibrium from which neither economy has a self-interested incentive to unilaterally deviate?
Altering Payoffs to Make Mutual Restriction a Stable Equilibrium
Strategic Flaw in a Climate Agreement
Altering Payoffs to Make Cooperation a Stable Equilibrium
Evaluating Climate Policy Strategies
Learn After
Consider a strategic interaction between two countries, Country X and Country Y, regarding their emissions policies. Each can choose to 'Restrict' or 'Don't Restrict' emissions. The payoffs, representing national welfare, are shown in the matrix below (Country X's payoff is listed first). Currently, the stable outcome is for both countries to choose 'Don't Restrict'.
Country Y Restrict Don't Restrict Country X Restrict (10, 10) (2, 12) Don't Restrict (12, 2) (5, 5) Which of the following changes to a single payoff would make the cooperative outcome ('Restrict', 'Restrict') a stable equilibrium where neither country has an incentive to change its strategy on its own?
Resolving a Regional Pollution Dilemma
Solving the River Pollution Dilemma
Pricing Strategy Analysis
Stabilizing Cooperation in a Business Duopoly
Calculating the Minimum Subsidy for Cooperation
An individual has a financial plan that provides them with $1,000 of consumption this year and $1,000 of consumption next year. They are then offered an alternative: they can give up $100 of consumption this year in exchange for an additional $110 of consumption next year. The individual states that they are indifferent between their original plan and this new alternative. Based on this information, what can be concluded about their time preference?
Two competing logging companies, 'TimberCo' and 'ForestCorp', share access to a single forest. If both practice sustainable harvesting ('Limit'), they each earn a profit of $10 million. If one company clear-cuts ('Don't Limit') while the other limits its harvest, the clear-cutting company earns $15 million, while the sustainable one earns only $2 million. If both companies clear-cut, the forest is quickly destroyed, and they each earn a profit of only $4 million. Currently, the incentive for each company is to choose 'Don't Limit', regardless of the other's choice. A government agency wants to intervene to make the cooperative outcome ('Limit', 'Limit') a stable equilibrium, where neither company has an incentive to unilaterally change its strategy. Which of the following policies would most effectively achieve this goal?
Consider two competing firms, Firm A and Firm B, deciding whether to set a 'High Price' or a 'Low Price'. The daily profits are shown in the payoff matrix below (Firm A's profit is listed first). Currently, the dominant strategy for both is to set a 'Low Price', leading to a suboptimal outcome for both.
Firm B High Price Low Price Firm A High Price (500, 500) (100, 700) Low Price (700, 100) (200, 200)
A government agency introduces a policy that fines any firm choosing 'Low Price' an amount of 150.
Statement: This policy is insufficient to make the cooperative outcome ('High Price', 'High Price') a stable equilibrium where neither firm has a unilateral incentive to change its strategy.Two companies, 'AquaClear' and 'RiverRun', operate on the same river. They must decide whether to 'Invest' in expensive water filtration systems or 'Don't Invest'. The payoff matrix below shows their annual profits in millions of dollars (AquaClear's profit is listed first). The current stable outcome is for both companies to choose 'Don't Invest'.
RiverRun Invest Don't Invest AquaClear Invest (10, 10) (2, 15) Don't Invest (15, 2) (5, 5)
A regulator wants to make the cooperative outcome ('Invest', 'Invest') a stable equilibrium, where neither company has an incentive to unilaterally change its strategy. Consider two possible policies:
Policy A: Provide a subsidy of 6 million to any company that chooses 'Invest'.
Policy B: Impose a tax of 6 million on any company that chooses 'Don't Invest'.
Which of these policies would successfully achieve the regulator's goal?