Question

Consider the case of global environmental problems that spill across international borders as a prisoner’s dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can choose whether to protect the environment, at a cost of 10, or not to protect it, at a cost of zero. If

one country decides to protect the environment, there is a benefit of 16, but the benefit is divided equally between the two countries. If both countries decide to protect the environment, there is a benefit of 32, which is divided equally

between the two countries.

a. In Table 12.10, fill in the costs, benefits, and total payoffs to the countries of the following decisions. Explain why, without some international agreement, they are likely to end up with neither country acting to protect the

environment.

Short answer

As a result, both nations opt not to protect, despite the fact that they will reap the greatest social advantages from a combined Monopolistic and Oligopolistic benefit if they both chose to protect. Environmental agreements can be used to compel governments to engage in environmental conservation in the interests of future generations.

Step-by-step solution

Explanation

Consider the issue of global environmental concerns that span international boundaries as a prisoner's dilemma similar to the one explored in Monopolistic Competitive market and Oligopoly.

Let's say A and B are two countries. Each country has the option of either protecting the environment at a cost of ten dollars or not protecting it at all.

Computation table

Country B has its own justifications for not spending money on environmental preservation. This is how it works. If A offers environmental protection, B receives a reward of 6 if it also provides environmental protection, and an 8 if it does not give environmental protection. As a result, in this scenario, B would not provide for protection of the environment. If A does not provide environmental protection, B will have a benefit of -2 if it chooses to provide for it, and gain of 0 if it does not, therefore it is preferable for B to not supply it in this scenario. As a result, B would not, in any situation, provide for environmental protection.