(Watson 23.2) Consider the following two-country tariff game. There are two countries that are labeled 1 and 2. Let x, be the tariff level of country i (in percent), for i=1,2. If country i picks x, and the other country j selects x₁, then country i gets a payoff of 2000+ 60x₁+xx-x7-90x,. Assume that x₁ and x₂ must be between 0 and 100 and that the countries set tariff levels simultaneously and independently. (a) Compute the Nash equilibrium of the stage game. (b) Find conditions on the discount factor such that zero tariff (x₁ = x₂ = 0) can be sustained each period by a subgame perfect equilibrium. Use the grim-trigger strategy profile.

(Watson 23.2) Consider the following two-country tariff game. There are two countries that are labeled 1 and 2. Let x, be the tariff level of country i (in percent), for i=1,2. If country i picks x, and the other country j selects x₁, then country i gets a payoff of 2000+ 60x₁+xx-x7-90x,. Assume that x₁ and x₂ must be between 0 and 100 and that the countries set tariff levels simultaneously and independently. (a) Compute the Nash equilibrium of the stage game. (b) Find conditions on the discount factor such that zero tariff (x₁ = x₂ = 0) can be sustained each period by a subgame perfect equilibrium. Use the grim-trigger strategy profile.

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter2: Systems Of Linear Equations

Section2.4: Applications

Problem 26EQ

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