Question
Two fishing fleets (from country A and country B) have been disposing of old fishing nets improperly by dumping them into the Pacific Ocean in
Two fishing fleets (from country A and country B) have been disposing of old fishing nets improperly by dumping them into the Pacific Ocean in which they fish. The nets left behind are killing larger predatory fish that get tangled in them. Each fishing fleets utility is a function of total benefits and total cost. Suppose that under the status quo (dumping of nets), each fleet has a utility of 20. Further suppose that the total cost of removing the nets is 14. If removed, each fleet stands to gain additional utility of 10 (because the removal has positive impacts on the ecosystem in which they fish increasing and ensuring a catch now and in the future).
(a) Assume that neither country is coordinating their efforts to clean the Pacific Ocean. Therefore, if a country decides to clean the ocean and remove the old fishing nets, they each must pay the total cleanup cost. Summarize the given information in a 2-by-2 table which compares each fleetss choice to invest or not invest in the cleanup. Derive the Nash Equilibrium and comment on the equilibriums efficiency. What could be done to improve the situation for both countries fishing fleets?
(b) Now suppose that the countries try to coordinate their actions and split the cost of the cleanup, i.e. if they both invest into the cleanup, then they share the cost (50/50), meaning each country pays 7. However, if only one of the countries makes the investment, then the country that invests will pay for all of the cleanup. Create another table which incorporates this new situation. Derive the Nash Equilibrium and comment on the equilibriums efficiency. What could be done to improve the situation for both countries fishing fleets now?
(c). Public goods are non-rival and non-excludable. How does the above problem about fisheries high-light difficulties associated with regulating public goods? How does the problem evolve when there are more than two actors involved? (maximum word count: 250)
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