Assignment of Environmental Valuation ( LEK826)

Group 4
1. Mama Taju Aman
2. Charity Amongin
3. Joseph PaulNthenda
https://youtu.be/_nmS33sZBHI?si=74pJLRHzxPH5VI9i
 Question Three

 Following the example of the US and China as a case study of “trade war”
(imposing tariffs on trade), use an example of resource management and
apply game theory to illustrate the best possible strategy available to them.
Find your own examples of penalties and pay offs and answer the following
questions.
1. Is the game cooperative? Why or why not?
2. Is that strategy Pareto Optimal?
3. Which game theory best explains this outcome?
 A case study of Ethiopia and Egypt
Resource: Abay (Nile) River
 The Nile river is a Transboundary River which touches more than 10
countries in East and North East Africa.

There is conflict of interest on the use of the river, specifically the

Abay River, especially between Ethiopia and Egypt.

Ninety percent Egypt’s water demand is obtained from this river and
almost all agricultural production in Egypt depends on this it.
C’td….
 Ethiopia is constructing a hydroelectric dam on this river (called Abay in Ethiopia) at the edge of its
western border with Sudan.

 Egypt, a downstream consumer of the Nile river has opposed the construction of this dam from the
beginning. Nonetheless, that didn't stop Ethiopia from breaking ground on the project nearly a decade
ago.

Egypt contends that the filling of this dam will reduce its current flow of the Nile waters. Ethiopia
argues that it has the right to fully utilize waters of the Abay river which originates in its country in Lake
Tana.

The key points of contention are the rate at which Ethiopia fills the dam’s reservoir and water
management especially during dry and drought season.
C’td

 Since the two countries suspect each other on the action taken by the
other, we can describe the scenario using game theory.

 Water as a natural resource needs to be used sustainably while

conserving the environment.

What Egypt shall do to sustain the river is helping Ethiopia’s effort in

plantation of seedling and trees may be through finance, knowledge
and technology.
C’td

 From Ethiopia side conservation of forests along river basin and

planting seedling will sustains river.

This is a cost to both countries. If they cooperate, they will enjoy

more mutual benefits.

This situation leads to where one country’s payoffs depend not only
on its decisions, but also on the other country’s decisions, and thus
can be described using game theory.
 C’td
The net benefit and loss depend of the strategy they follow.

 Benefits for Ethiopia-electric power, irrigation ,fishing ,tourism etc.

 Cost- construction cost, conservation cost etc.

 For Egypt again –shared electric power, irrigation, fishing ,tourism,

recreation etc. and cost on dam, conservation cost etc.

 To maximize benefits and minimize costs strategic interaction is

inevitable which can best be analyzed by game theory.
Hypothetical payoff matrix of two countries

 Strategy- co-operate and not co-operate

Player B ( Egypt)

Cooperate Not cooperate

Cooperate (100,100) ( -20, 150)

Player A ( Ethiopia)
Not cooperate ( 150, -20) (-10,-10)
C’td
 From payoff matrix ;
 When both countries cooperate, they both gain 100 each.
If player A cooperates and player B chooses not to cooperate A
looses while B gains by 50. similarly, when Player B cooperates and
A chooses to defect for selfish reasons, the outcome will be 150 for A
and -20 for B.
If both countries defect, they will both lose, that is, they will both be
worse off.
C’td
 No matter what the other player chooses, it is better for either player
not to cooperate.

Therefore, the dominant strategy of the game is not cooperate. i.e (not
cooperate, not cooperate).

However, this is not a socially optimal strategy since it ends up in loss

for each player(-20,-20).
C’td
 Had they cooperated, they would have maximized social benefit but
they didn’t.
1. Is the game cooperative? Why or why not?
No, the game is not cooperative because there is no consensus and trust
between players.

2. Is that strategy Pareto Optimal?

No, it is not optimal because the dominant strategy of the game is loss for both
players.
C’td

If there is cooperation it is possible to improve the payoff of each player

so, the strategy is not pareto optimal.

3. Which game theory best explains this outcome?

Nash equilibrium.
 Conclusion

 To maximize their benefits, both players should cooperate.

They should work together, help each other on conservation of natural

resource, plant trees and cooperate on avoiding environmental change
which otherwise make worse off both parties.