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Suppose that both countries are subject to the authority of a global environmental watchdog that imposes the following tax-and-reward scheme: a. Both countries are to
Suppose that both countries are subject to the authority of a global environmental watchdog that imposes the following tax-and-reward scheme: a. Both countries are to be taxed by t billion $ b. Countries that can show compliance with environmental regulation receive a bonus of t billion $. Represent the new game that includes these taxes and rewards in a new payoff table for Countries 1 and 2. What is the minimal value t* of the tax-and-reward amount t that ensures that (Compliance, Compliance) is a Nash equilibrium of this revised game. If the minimum value t* of the tax-and-reward amount t is implemented, what are the other Nash equilibria of the game (i.e. other than (Compliance, Compliance)), if any? Briefly explain
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