The Suboptimal Dominant Strategy Equilibrium in the Pest Control Game
The predicted outcome of the pest control game is a dominant strategy equilibrium where both farmers choose 'Toxic Tide,' resulting in a payoff of 2 for each. This equilibrium is suboptimal because it arises from self-interested behavior; each farmer ignores the costs their decision imposes on the other, leading them to a mutually undesirable outcome. A different outcome, where both use Integrated Pest Control (IPC), would make both better off with a payoff of 3 each.
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Ch.4 Strategic interactions and social dilemmas - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Two farmers, Anil and Bala, must independently choose a pest control method: Integrated Pest Control (IPC) or Toxic Tide. Their profits (payoffs) depend on the combination of choices they make.
- If both choose IPC, they each get a payoff of 3.
- If Anil chooses IPC and Bala chooses Toxic Tide, Anil gets 1 and Bala gets 4.
- If Anil chooses Toxic Tide and Bala chooses IPC, Anil gets 4 and Bala gets 1.
- If both choose Toxic Tide, they each get a payoff of 2.
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- If both choose Toxic Tide, they each get a payoff of 2.
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Bala: I Bala: T Anil: I (3, 3) (1, 4) Anil: T (4, 1) (2, 2) A government agency wants to change the outcome by offering an identical subsidy to any farmer who chooses 'Integrated Pest Control' (I). What is the minimum subsidy that would be required to make (I, I) the new dominant strategy equilibrium?
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