Q2. A government can pursue three policies: x, y or z. The monetary values attached to...

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Q2. A government can pursue three policies: x, y or z. The monetary values attached to these policies by two interest groups, A and B are as follows: Interest group A puts monetary value 0 to policy x, 3 to policy y and -100 to policy z. Interest group B puts monetary value 0 to policy x, -100 to policy y and 3 to policy z. To persuade the government to choose a particular policy, each interest group can propose a policy, and promise to make a payment to the government. The government chooses the policy proposed by the group that is willing to make the highest payment. The winner group then makes its promised payment to the government, and the losing group makes no payment. The net payoff to each interest group is the value it attaches to policy chosen by the government, minus the payment it makes. In case of a tie, the government chooses the policy favored by the group whose name comes first in the alphabet. Show that this game has a Nash equilibrium, in which lobby A says it will pay 103 for y and lobby B says it will pay 103 for z. Q2. A government can pursue three policies: x, y or z. The monetary values attached to these policies by two interest groups, A and B are as follows: Interest group A puts monetary value 0 to policy x, 3 to policy y and -100 to policy z. Interest group B puts monetary value 0 to policy x, -100 to policy y and 3 to policy z. To persuade the government to choose a particular policy, each interest group can propose a policy, and promise to make a payment to the government. The government chooses the policy proposed by the group that is willing to make the highest payment. The winner group then makes its promised payment to the government, and the losing group makes no payment. The net payoff to each interest group is the value it attaches to policy chosen by the government, minus the payment it makes. In case of a tie, the government chooses the policy favored by the group whose name comes first in the alphabet. Show that this game has a Nash equilibrium, in which lobby A says it will pay 103 for y and lobby B says it will pay 103 for z.

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To analyze the game and find a Nash equilibrium lets consider the possible strategies and payoffs fo... View the full answer