(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.
Advanced Engineering Mathematics
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ISBN:9780470458365
Author:Erwin Kreyszig
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Chapter2: Second-order Linear Odes
Section: Chapter Questions
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Transcribed Image Text:4. (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 x,, then country i
gets a payoff of 2000+ 60x + xix-x7-90xj. 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.
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