The Following (Incomplete) Payoff Table Depicts the Net Benefits to the United

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The Answer is a.The completed table is given by:

\begin{array} { | c | c | c | } \hline & 0 ext { tons } & .6 ext { tons } \\hline 0 ext { tons } & 0,0 & 24 , - 12 \\hline .4 ext { tons } & - 8,20 & 16,8 \\hline\end{array}

b.Each side’s dominant strategy (and the resulting equilibrium) is 0 reductions (the top left cell). Yes, this is a prisoner’s dilemma. Reciprocal reductions (lower right cell) are mutually beneficial, but the individual incentives of each player push them to a less mutually beneficial outcome (0 reductions).
Under a negotiated agreement, the sides should settle on reciprocal reductions – at least the lower right cell, and presumably even greater mutual reductions. This presumes, however, that the parties can find a way to monitor and police the reductions agreement.
c.Yes, going beyond the proposed reductions in the table will further increase social net benefits. This is so because the total marginal benefit from reductions is: 40 + 50 = $90 per ton. The MC of reduction is only $60 and $70 per ton. With MB > MC, further reductions would increase total social benefit. Reductions should stop at the point such that MB = MC_US = MC_EU.
d.With approximately equal emissions between the sides and the same proportional allocations, the sides will have comparable shortfalls between current emissions and allotted permits. But the MC of reduction in the US is cheaper than in the EU. Therefore, more emission reduction will take place in the US, inducing sales of unneeded permits from the US to the EU. For instance, if the permit price settled at a level such as P = $66 per ton, it pays to reduce emissions in the US, while the EU would find it cheaper to purchase permits rather than clean up emissions.

The Following (Incomplete) Payoff Table Depicts the Net Benefits to the United

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