Economists describe the global environmental challenge faced by many countries by the following game:

• suppose there are two players: a developed country (A) and a developing country (B);

-each country has two choices: taking actions to address the global environmental issues(Choice Y) or turning a blind eye to the global environmental issues (Choice N);

• both countries pick their choices simultaneously;

• if both countries take action to address the global environmental issues, Country A receives a benefit of $6 billion, and Country B receives a moderate benefit of $1 billion;

• if neither countries take action, both suffer an environmental loss of $1 billion;
• if Country A takes action while Country B doesn't, both countries enjoy an environmental benefit of $2 billion each;
• if Country B takes action while Country A doesn't, A receives an environmental benefit
of $8 billion, while B suffers a loss of $2 billion.

(a) Write down the payoff matrix of this game.
(b) What is the Nash equilibrium of the game?
(c) Does the socially desired outcome that both countries take actions to address the global environmental issues constitute a Nash equilibrium? Briefly explain your answer.

Answer rating: 100% (QA)

a The payoff matrix of this game can be represented as follows Country A Y Country A N Country B Y 6 ... View the full answer