ECON1020 PRINCIPLES OF ECONOMICS 1 ASSIGNMENT

PARTA:GAMETHEORYANDCLIMATECHANGE

In March 2023 the Intergovernmental Panel on Climate Change (IPCC) released its SynthesisReport,cappingoffseven yearsofin-depth assessmentsonvariousclimate-relatedtopics.

Theauthorsofthereportconcluded:

• It was now "unequivocal" that climate is changing as a result of human activity, and that it is a threat tohuman societies andthenatural world.
• Climate change is already making extreme weather events more frequent with 3.3 to 6 billion peoplelivinginplaces highlyvulnerable tothese changes.
• Cuts to emissions need to be "deep, rapid and sustained" if the world is to limit warming to5 degreesCelsius this decade.
• If warming goes above that, adaptation will likely be too much for some communities andecosystems to

In response to the reports findingsthe United Nations Secretary-General, Antnio Guterres,called for all G20 members to come together in a joint effort, pooling their resources andscientific capacities as well as their proven and affordable technologies through the publicandprivatesectors tomake carbonneutralitya realityby2050.

We can model how two nations interact with regard to their climate policy using gametheory. Lets take two members of the G20, Argentina and France. Assume that each nationcanchoosefromoneoftwopossible climate strategies:

• Abate: governments enact policies to reduce carbon emissions, for example, by taxing fossilfuels orsubsidisingclean
• Pollute: governments fail to enact policies to reduce carbon emissions. Businesses and individuals are free to continue to use fossil fuels and pursue their own self-

The payoffs of this game are shown in Figure 1 below. All payoffs represent potentialincreasestothenationsgrossdomesticproduct(GDP),measuredinbillionsofUSD.

Figure1:PayoffsfortheclimatestrategygamebetweenArgentinaandFrance.

Question1

Looking at the game shown in Figure 1. Determine whether either nation has a dominantstrategy. Briefly explain your answer and state the dominant strategy if it exists. [3 marks][maxwords:150]

Question2

What is the Nash equilibrium of the game shown in Figure 1? Is this Nash equilibrium aprisoners dilemma? Whyorwhynot?[3 marks][maxwords: 150]

Question3

Given the payoffs shown in Figure 1, do you think the wishes of the United NationsSecretary-General that G20 members come together in a joint effort to make carbonneutralityarealityis realistic?Whyorwhynot? [2marks][maxwords: 100]

Question4

Suppose there is a change in the payoffs, as shown in Figure 2. With these revised payoffs inmind, determine whether either nation has a dominant strategy. Briefly explain your answerandstatethe dominantstrategyifit exists.[3 marks][maxwords:150]

Figure2:Theclimate strategygamewithrevisedpayoffs.

Question5

What is the Nash equilibrium of the game shown in Figure 2? Is this Nash equilibrium aprisoners dilemma? [2marks][maxwords: 100]

Question6

Given the payoffs shown in Figure 2, do you think the wishes of the United NationsSecretary-General that G20 members come together in a joint effort to make carbonneutralityarealityis realistic? Whyorwhynot? [2 marks] [maxwords:100]

Question7

Thinking only about the payoffs in Figures 1 and 2, briefly discuss the reasons for anysimilaritiesordifferencesinyouranswerstoQuestions3and6.[2marks][maxwords:100]

Using a diagram with Frances payoffs on the horizontal axis and Argentinas payoffs on thevertical axis, plot each of the possible outcomes shown in Figure 2. Be sure to label yourdiagram and provide a key to each of the possible outcomes. (Hint: see Figure 5.1 in yourtextbookforinspiration).[3 marks]

Question9

Using the diagram you created for Question 8, show which, if any, of the allocations areParetoefficient. [2marks]

Question10

Briefly discuss a possible drawback of using the Pareto criterion to evaluate the outcomes oftheclimatestrategygame showninFigure 2. [3marks] [maxwords: 150]

PART B:POWERINECONOMICINTERACTIONS

You are now asked to model the relationship between free time and production for a ricefarmer named Diya who is being coerced by a landowner named Avery. Avery does notfarmandcanforceDiyatoworkforthem. Tosurvive, Diyamust dowhatAverysays.

If Diya was able to work 24 hours a day, they could produce 5 tonnes of rice each day. Youare told that the allocation that maximises Averys economic rent occurs when Diya worksfor 10 hours a day, producing a total of 4 tonnes of rice each day. At this allocation, Diyagets2 tonnes ofriceeachdaytosurvive.

Question11

Using a model of decision-making under scarcity, with free time on the horizontal axis andrice production on the vertical axis, show the allocation under coercion described above. Onthis diagram be sure to label the feasible frontier and biological survival constraint, alongwith the intercepts ofeachcurve. [4marks]

Question12

Using the diagram you created for Question 11, show the technically feasible set that resultsfrom Averys coercion of Diya. What can we say about the slope of the feasible frontier andthe biological survival constraint when Averys economic rent is being maximised? [2marks]

Question13

Evaluate the allocation under coercion based on a substantive judgement of fairness. Be suretobrieflydefinethistypeofjudgement in youranswer.[3marks][maxwords:150]

Question14

Evaluate the allocation under coercion based on a procedural judgement of fairness. Be suretobrieflydefinethistypeofjudgementinyouranswer. [3marks][max words: 150]

Research has shownthat land reforms that give farmers ownership of the land on whichthey farm can have long-standing positive impacts on livelihoods, food security, and theself-sufficiencyofhouseholds.

Suppose that Diya now owns the land on which they farm and that Avery no longer has aclaim on the land. You are told that Diyas utility-maximising choice is to work for 9 hoursandproduce 3.5 tonnes ofrice.

Using a model of decision-making under scarcity, with free time on the horizontal axis andrice production on the vertical axis, show Diyas optimal choice of free time and production.On this diagram be sure to label the feasible frontier and indifference curve, along with theoptimalchoice. [3 marks]