1. Every November, Smith and Jones each face the choice between burning their leaves or stuffing them into garbage bags. Burning the leaves is much easier but produces noxious smoke. The utility values for each person, measured in utils, are listed in the table for each of the four possible combinations of actions:

a. If Smith and Jones are utility maximizers and make their decisions individually, what will they do?

b. How will your answer to part

(a) differ, if at all, if Smith and Jones can make binding agreements with each other?
Now suppose the payoff matrix is as follows:

c. What will they do this time if they can make binding agreements?

Transcribed Image Text:

Smith Burn Bag Jones: 4 Jones: 8 Burn Smith: 4 Smith: 2 Jones Jones: 2 Jones: 6 Bag Smith: 8 Smith: 6