Consider the following payoff matrix for two countries, A and B, deciding on their environmental policy. The payoffs represent economic benefits, where a higher number is better. Without communication, the equilibrium outcome is for both countries to choose the 'High Pollution' strategy, resulting in a payoff of (2, 2) for (Country A, Country B).
Payoff Matrix:
| Country B: Low Pollution | Country B: High Pollution | |
|---|---|---|
| Country A: Low Pollution | (5, 5) | (1, 6) |
| Country A: High Pollution | (6, 1) | (2, 2) |
If the two countries are able to negotiate and form a binding agreement, which outcome are they most likely to achieve together?
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Payoff Matrix:
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