Newfoundland\'s fishing industry declined sharply in the early 1990s due to over
ID: 1218670 • Letter: N
Question
Newfoundland's fishing industry declined sharply in the early 1990s due to overfishing, even though fishing companies were supposedly bound by a quota agreement. If all fishing companies had abided by the agreement, yields could have been maintained at high levels. LO5, LO6, LO8 Model this situation as a prisoners dilemma in which the players are Company A and Company B and the strategies are to keep the quota and break the quota. Include appropriate payoffs in the matrix. Explain why overfishing is inevitable in the absence of effective enforcement of the quota agreement. Provide another environmental example of a prisoners dilemma. In many potential prisoners dilemmas, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners. Explain why this solution is not available in many situations involving degradation of the environment.Explanation / Answer
COMPANY A
COMPANY B
KEEP QUOTA
BREAK QUOTA
KEEP QUOTA
Second Best for both
Worst for A. Best for B
BREAK QUOTA
Best for A. Worst for B
Third best for both
If A breaks its quota while B keeps it, then A will get the largest possible profit and B will get the smallest.
If B Breaks its quota while A keeps it, then B will get the largest possible profit and A will get the smallest.
Both will get a higher profit if both keep the quota than if both break it.
The payoffs are perfectly symmetric.
Each dominant strategy is to break the quota, which means that both will do so unless some way can be found to enforce the quota.
Provide another environmental example of a prisoner’s dilemma.
Air pollution.
If I pollute from my factory and no one else does, then I gain from not having to install pollution-control equipment, as well as from clean air; since my own pollution has only a negligible effect on air quality.
However, if all other industrialists think this way, the air will become polluted, and all will be worse off than if none had polluted.
In many potential prisoner’s dilemma, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners.Explain why this solution is no available in many situations involving degradation of the environment.
In situation involving environmental degradation, the players usually do not know each other.
When interactions are anonymous, there is no opportunity to make character judgments.
In such cases, legal enforcement is often necessary.
COMPANY A
COMPANY B
KEEP QUOTA
BREAK QUOTA
KEEP QUOTA
Second Best for both
Worst for A. Best for B
BREAK QUOTA
Best for A. Worst for B
Third best for both