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IECO1100 ASSESSMENT 1 Game Theory Assignment

(20%) 30 marks

Context and Assessment Task

To be Submitted through TURNITIN

You must include in -text referencing and a reference list

Please number and answer EACH QUESTION SEPARATELY.

Game theory is a useful analytic tool to study strategic interactions, e.g. see https://theconversation.com/john-nash-and-his-contribution-to-game-theory-and-economics-42355

This game theory assignment relates to the battle between the United States and China regarding emissions restrictions and how to combat climate change. These 2 countries have been involved in international climate negotiations and policy discussions over the past several years.

Historically the United states has been the world’s largest emitter of greenhouse gases (GHGs) primarily due to its industrial development and high levels of energy consumption. However, in recent decades China has surpassed the United States to become the world’s largest emitter, fueled by rapid economic growth and industrialization.

As China and the US are the 2 largest economies and the highest emitters of greenhouse gases they jointly play pivotal roles in leading the way for global efforts to address climate change.

Part (A) 25 marks

1. Provide an overview of the background of global efforts to reduce emissions to slow climate change. Focus on the roles that China and the United States have played. (5 marks)

2. Explain if there were any attempts between both countries to negotiate/ cooperate? Were they successful? (2 marks)

3. Describe the concerns that China and the United States have regarding the economic cost and trade implications should they undertake large scale changes to reduce emissions. Give reasons why each country may not be keen to reduce emissions. (4 marks)

4. What would be the benefits to each country and global climate change if both countries cooperated and both reduced emissions? (2 marks)

5. Complete the table below (2 marks)

TABLE 1

6. Differentiate between “self regarding” and “other regarding” preferences? Use China and the United States as examples here. (1 mark)

TABLE 2

SELF REGARDING PREFERENCES

7. From the above table -Given this is a simultaneously played game, explain what CHINA’S best strategy is (given the UNITED STATES’ possible actions) and what the UNITED STATES’ best strategy is (given CHINA’S possible actions). (4 marks)

8. Does a DOMINANT STRATEGY exist for both countries? Explain. (2 marks)

9. Explain if a dominant strategy equilibrium results and whether this results in an OPTIMAL OUTCOME. Conclude and explain whether this game is an invisible hand outcome or a prisoner’s dilemma outcome and why. (2 marks)

10. Is this outcome Pareto efficient? Explain (1 mark)

Part (b) 5 marks

11. Explain what is meant by EQUITY (fairness) AND EFFICIENCY? Is a situation of COOPERATION between both countries where they both reduce emissions adequately likely to achieve these 2 objectives? Discuss. (2 marks)

12. Describe some ways to give incentives or put pressure on both countries to achieve the optimal outcome? (3 marks)