Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

Prisoner's Dilemma and Emissions Trading: Strategies and Costs, Assignments of Microeconomics

A problem set for a class, consisting of two parts. The first part is about the prisoner's dilemma, a classic game theory scenario where two individuals must decide whether to confess to a crime. The second part deals with emissions trading in the context of environmental regulations, where firms must reduce their pollutant emissions. Students are asked to determine the best strategies for the prisoners and the firms, as well as calculate the costs and permit prices.

Typology: Assignments

Pre 2010

Uploaded on 08/19/2009

koofers-user-bkj
koofers-user-bkj 🇺🇸

10 documents

1 / 4

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
THE FOLLOWING PROBLEM IS DUE FOR HOMEWORK ON
THURSDAY, APRIL 16.
TOTAL POINTS: 40 (2 free points)
NAME _______________________________
1. TOTAL POINTS: 14. The following “game” illustrates the source of the title
“The Prisoner’s Dilemma.”
Bert and Ernie are arrested for a crime. The district attorney has little
evidence in the case. Unless she gets a confession, she can only convict them
of a lesser offense for which each will serve 5 years in prison. Since she is
anxious to extract a confession, she separates Bert and Ernie and tells each, “If
you confess and your companion does not, I can promise you a reduced (2-
year) sentence, whereas, on the basis of your confession, your companion will
get 20 years. If you both confess, you will each get a 10-year sentence.” The
“choices” facing Bert and Ernie are summarized in the pay-off matrix below.
PAY-OFF MATRIX
BERT’S ACTIONS
Confess Don’t Confess
Confess Ernie: 10 years
Bert: 10 years
Ernie: 2 years
Bert: 20 years
ERNIES ACTIONS
Don’t Confess Ernie: 20 years
Bert: 2 years
Ernie:5 years
Bert: 5 years
pf3
pf4

Partial preview of the text

Download Prisoner's Dilemma and Emissions Trading: Strategies and Costs and more Assignments Microeconomics in PDF only on Docsity!

THE FOLLOWING PROBLEM IS DUE FOR HOMEWORK ON

THURSDAY, APRIL 16.

TOTAL POINTS: 40 (2 free points)

NAME _______________________________

  1. TOTAL POINTS: 14. The following “game” illustrates the source of the title “The Prisoner’s Dilemma.” Bert and Ernie are arrested for a crime. The district attorney has little evidence in the case. Unless she gets a confession, she can only convict them of a lesser offense for which each will serve 5 years in prison. Since she is anxious to extract a confession, she separates Bert and Ernie and tells each, “If you confess and your companion does not, I can promise you a reduced (2- year) sentence, whereas, on the basis of your confession, your companion will get 20 years. If you both confess, you will each get a 10-year sentence.” The “choices” facing Bert and Ernie are summarized in the pay-off matrix below. PAY-OFF MATRIX BERT’S ACTIONS Confess Don’t Confess Confess Ernie: 10 years Bert: 10 years Ernie: 2 years Bert: 20 years ERNIES ACTIONS Don’t Confess Ernie: 20 years Bert: 2 years Ernie:5 years Bert: 5 years

a. Figure out which strategy is in each prisoner’s best individual interest by filling out the chart below. ERNIE’S BEST STRATEGY BERT’S BEST STRATEGY If Bert confesses Action: Time served:


If Ernie confesses Action: Time served:


If Bert does not confess Action: Time served:


If Ernie does not confess Action: Time served:


Pick one element in the chart you filled out above and explain how you determined it. (10 points) b. Suppose Bert and Ernie know that the DA does not have enough evidence to convict them of the more serious crime. Thus, before they are arrested, they promise each other that they will not confess. Do you think it is more likely that each will keep the bargain or more likely each will “cheat”? Explain. (4 points)

b. Suppose that the government instead issues one emissions reduction “permit” to each firm (the holder of each permit must reduce emissions by 1 ton ) and allows them to trade the emissions reduction permits. Indicate: i. Which firm(s) will reduce emissions and why. (8 points) ii. The total cost of the emissions reduction. (4 points) iii. The price of an emissions reduction permit and how you determined it. (4 points) SHOW CALCULATIONS AND EXPLAIN YOUR REASONING CLEARLY.