Question

A company (C) can choose to use a currently legal but contaminating technology (USE) or not (NOT). The government (G) prefers that the company does not use this technology (the government's approval rating is highest this way). Nonetheless, if the company does use it, the government prefers to let it go (OK if USE) rather than allocating resources to make the technology illegal (FIGHT if USE), which would result in a further loss of approval rating. The profits for the company ( ΠC ) and the approval ratings for the government (ARG) can be soen in the following game tree: (a) What is the equilibrium path associated with the SPNE of this game? What is the outcome? (b) Analize the validity of this statement: "the government can make the company not use the technology by threatening them to fight if they use it."

Answer 1

In a game theory scenario involving a company's decision to use contaminating technology and government reaction, market-oriented economies typically favor technological progress and economic efficiency over protectionist measures, supporting retraining and R&D instead.

Step-by-step explanation:

The situation presented in the question is a strategic decision-making scenario often analyzed using game theory, where a company must decide whether to use a contaminating technology and the government must react to the company's decision. The key concern is the balance between economic output, environmental protection, and societal impacts of technological change. Considering the hypothetical company Technotron, the consensus in market-oriented economies is often against blocking new technologies, favoring instead programs for retraining and developing new skills, and research and development efforts for competing firms. This is because technological disruptions, despite their short-term drawbacks, are seen as a necessary cost for long-term progress and efficiency. This stance reflects the idea that market-oriented environmental tools can achieve environmental protection efficiently without impeding economic growth.