Question
Two countries, 1 and 2, simultaneously set their national lockdown policies,l1andl2, in response to a pandemic, where0li1fori= 1,2. The economic cost of the lockdown in
Two countries, 1 and 2, simultaneously set their national lockdown policies,l1andl2, in response to a pandemic, where0li1fori= 1,2. The economic cost of the lockdown in countryiisli. The health cost of the pandemic for the citizens of countryiequalscln(li+li/2), withc >0and >0, wherelidenotes the lockdown policy of the other country (which also affects the rate of infection in countryi), with "ln" denoting the natural logarithm. Each country wants to minimise the total cost of the pandemic incurred by its nationals, which equalslicln(li+li/2).Derive symmetric Nash equilibrium lockdown policies for= 1/2.
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