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Two countries, A and B, have to make a decision on the targets of emission permits (one emissions permit is considered equivalent to one metric
Two countries, A and B, have to make a decision on the targets of emission permits (one emissions permit is considered equivalent to one metric ton of carbon dioxide (C02) emissions; also referred to as carbon credits, Kyoto units, assigned amount units, and Certified Emission Reduction units (CERD that they will impose for their national industries, given the EU wide cap on emissions. They can decide to impose an amount of either 25, 50 or 75 certificates. Binding contracts between A and B are not possible. The countries' welfares are presented in the payoff matrix below, which is common knowledge. Suppose that the countries have to choose sequentially. Assume that country A is the first that decides. a) Present the extensive form of the game b) What cap will country A and B each impose? C) What profit will A and B each earn
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