The United States and China are the two largest carbon emitters in the world. If either US or China implements a policy to reach zero emission by 2030, both countries will receive a benefit of 3 billion taking into consideration of its impact on ecosystem and economic growth. The costs of implementing this policy are 5 billion (that is the net gain for the country that implements such policy is -2). If none of them acts to reach zero emission, the deteriorating environment will cause each country to lose 1 billion.

a. Use a game matrix to depict the situation using the net benefits (differences between benefits and costs) as payoffs.

b. Explain the Nash Equilibrium of the game if each country is left to make decisions independently at once (simultaneous one-shot game).

c. What mechanism can be used to encourage countries to commit on climate change? Illustrate one solution using game theory (Explain how your solution changes the payoff and the Nash Equilibrium).