Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose India and Pakistan sign a treaty requiring both countries to stop building nuclear weapons. If both countries abide by the treaty, India receives a

image text in transcribed
Suppose India and Pakistan sign a treaty requiring both countries to stop building nuclear weapons. If both countries abide by the treaty, India receives a payoff of 9 and Pakistan receives a payoff of 12. If India cheats on the treaty while Pakistan abides by it, India receives a payoff of 15 and Pakistan receives a payoff of zero. If Pakistan cheats on the treaty while India abides by it, Pakistan receives a payoff of 15 while India receives a payoff of zero. If both countries cheat on the treaty, India receives a payoff of 6 while Pakistan receives a payoff of 3. a) Draw the strategic form game. b) Solve for the equilibrium of the game. Will India and Pakistan abide by the agreement? c) Suppose instead that the treaty is expected to be in force indefinitely into the future and that India and Pakistan receive the payoffs described each year the treaty is in force. The two countries know that if either country defects on the agreement the other country will punish the cheater by defecting in return. Assume that both countries' discount rates are 0.9. How many periods would India have to punish Pakistan in order to make compliance worth more to Pakistan than cheating? (Show your work) d) How many periods would Pakistan have to punish India in order to make compliance worth more to India than cheating? (Show your work) e) Explain why the answers you obtained in parts c and d are different. Be specific

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Organizational Behaviour Concepts Controversies Applications

Authors: Nancy Langton, Stephen P. Robbins, Timothy A. Judge, Katherine Breward

6th Canadian Edition

132310317, 978-0132310314

Students also viewed these Mathematics questions