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Question 6 (15 marks) There are two parties: Republicans (R) and Democrats (D). The former are considering announcing new tax cuts for businesses, while the
Question 6 (15 marks) There are two parties: Republicans (R) and Democrats (D). The former are considering announcing new tax cuts for businesses, while the latter need these budget revenues to finance their social promises. Implementing this tax policy incurs a cost (C), representing the political capital spent on its promotion and the potential backlash for the Republicans. If the Republicans proceed, the party makes a proposition (T) evaluated as a cut in budget revenues. The Democrats must decide whether to accept or reject the proposition. If accepted, the game terminates. If rejected, the Republicans face a dilemma: whether to withdraw the policy or proceed to vigorously defend it through political debate. Defending the policy involves additional costs for both sides: Y for the Democrats and Z for the Republicans. The chan\\ces of the Republicans winning in the debates are represented by P. You must: 1. Draw the game tree. 2. Derive the subgame perfect Nash Equilibrium of this game if PT
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