5. Newfoundland’s fishing industry has recently declined sharply due to overfishing, even though fishing companies were supposedly bound by a quota agreement. If all companies had abided by the agreement, yields could have been maintained at high levels. (LO2)

a. Model this situation as a prisoner’s dilemma in which the players are Company A and Company B, and the strategies are to keep the quota and break the quota. Suppose that if both companies keep the quota, then each receives a payoff of $100, and if both break the quota, then each receives a payoff of $0. On the other hand, if one company breaks the quota and the other keeps the quota, then the company that breaks the quota receives a payoff of $150 and the company that keeps the quota receives a payoff of −$50. Construct the corresponding payoff matrix, and explain why overfishing is inevitable in the absence of effective enforcement of the quota agreement.

b. Provide another environmental example of a prisoner’s dilemma.

c. In many potential prisoner’s dilemmas, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners. Explain why this solution is not available in many situations involving degradation of the environment.