Georges Bank in the North Atlantic. Each country’s fleet seeks to
secure the greatest possible catch. But the simultaneous pursuit of
maximum catches by all countries threatens depletion of the world’s
richest fishing grounds. Similarly, firms in many industries generate
air and water pollution as manufacturing by-products, and it is hardly
in their self-interest to adopt costly pollution controls. Nonetheless,
the collective, social benefit of reducing pollution may be well worth
the cost.- The more widely antibiotics are prescribed, the more rapidly drug-
resistant microorganisms develop.
In each of these cases, there is a significant collective benefit from coop-
eration. However, the self-interest of individual decision makers leads to quite
different, noncooperative, behavior. The key to overcoming the prisoner’s
dilemma is to form an agreement that binds the parties to take the appropri-
ate cooperative actions. To halt the arms race, the interested parties must bind
themselves to a verifiable arms control treaty. Cartel members can agree to
restrict output in order to maximize the collective profit of the cartel. A nego-
tiated treaty on fishing quotas is one way to preserve Georges Bank. The
American Medical Association has proposed guidelines calling for conserva-
tive practices in prescribing antibiotics. In the natural gas example, a binding
agreement among consumers is impossible; rather, the way to encourage cuts
in consumption is via higher natural gas prices.372 Chapter 9 OligopolyCHECK
STATION 4In the prisoner’s dilemma example, suppose that a minimum sentencing law requires
that a defendant entering into a plea bargain must serve a minimum of three years.
What entries will this affect in Table 9.3? Explain why this law is likely to backfire in the
present instance.On January 6, 1994, an unknown assailant attacked figure skater Nancy
Kerrigan, injuring her right knee and preventing her from competing in the
United States Olympic trials. Within days, the police and FBI followed a trail
of clues left by the inept perpetrators. They subsequently arrested three men,
one of whom was the former bodyguard of rival skater Tonya Harding. At first,
Miss Harding and Jeff Gillooly (her former husband, with whom she was liv-
ing) repeatedly denied any knowledge of the attack. However, after more than
10 hours of interviews with federal investigators, Miss Harding admitted that
she learned of Gillooly’s involvement several days after the attack. When
Gillooly later found out about Harding’s statement (she had repeatedly
assured him she had not implicated him), he named her as a key figure in
planning the attack.Attack on
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