Laundry and Electric Company

Background

The E Electric Company emits smoke, which dirties the wash at the L Laundry. ▶ E can abate this external cost by installing scrubbers on its stacks, and L can reduce the damage by installing filters on its ventilation system. ▶ When E does not install scrubbers, its profits are $1000 (re g a r d l esso f w ha tt h e l a u n d ry d oes) .▶ Wh e n L d oes n o t in s t a ll f i lt ers an dd oes n o t s u ff er p o ll u t i o n d ama g es (b ec a u se E ha s in s t a ll e d scr u bb ers), L ’ s p ro f i t s a re$ 300. ▶ Pollution destroys $200 o f L ’ s p ro f i t s .▶ L c ana v o i d t hi s b y in s t a ll in g f i lt ers a t a cos t o f$ 100, or E can avoid it by installing scrubbers at a cost of $500.

So we can conclude a Nash Equilibrium table:

HZD's Digital Garden

Laundry and Electric Company

Background

Graph View

Backlinks