Researchers in Westland and Eastland are developing better treatments for lycanthropy, which afflicts no other region in the world. Inhabitants of both countries benefit from better treatments regardless of which country conducts the research. The country specific marginal benefit from the research differs, however, due to differing prevalence of the disease as well as different trade-offs with respect to other potential uses of resources. In Westland the marginal benefit at Q researcher-years is P d W (Q) = 96 − 12Q and in Eastland P d E(Q) = 60 − 10Q, where the benefit is measured in Large Monetary Units (LMU). The cost of a researcher-year is a constant 20 LMUs in both countries. (a) What is the efficient amount of research? (b) Suppose one of the countries jumps ahead and commits to provide exactly half of the efficient amount in part 3a. Taking this as given, how much will the other country then provide? Consider both cases of either Westland or Eastland being the first mover. (c) Suppose there is also a third country, Northland, that is worried about lycanthropy and has exactly the same preferences as Eastland. Now what is the efficient amount of research?
Researchers in Westland and Eastland are developing better treatments for lycanthropy, which afflicts no other region in the world. Inhabitants of both countries benefit from better treatments regardless of which country conducts the research. The country specific marginal benefit from the research differs, however, due to differing prevalence of the disease as well as different trade-offs with respect to other potential uses of resources. In Westland the marginal benefit at Q researcher-years is P d W (Q) = 96 − 12Q and in Eastland P d E(Q) = 60 − 10Q, where the benefit is measured in Large Monetary Units (LMU). The cost of a researcher-year is a constant 20 LMUs in both countries.
(a) What is the efficient amount of research?
(b) Suppose one of the countries jumps ahead and commits to provide exactly half of the efficient amount in part 3a. Taking this as given, how much will the other country then provide? Consider both cases of either Westland or Eastland being the first mover.
(c) Suppose there is also a third country, Northland, that is worried about lycanthropy and has exactly the same preferences as Eastland. Now what is the efficient amount of research?
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