This exercise tries to illustrate a debate in a centralized economy, which is in the process of being modernized, with a single political party. Social stability is the main concern of the government...

This exercise tries to illustrate a debate in a centralized economy, which is in the process of being modernized, with a single political party. Social stability is the main concern of the government but it is faced by two obstacles: one being support a strengthening of the control of the party (P, party control supporter), the other adopt a more market approach (M, market supporter) with free enterprises and price liberalization.

The following table represents payoffs for each side. Think as payoff a measure of influence in the political governing bodies: if party control supporter accept a weakening of the party and market supporter obtain more market mechanisms, P received a negative payoff of –20 and M a positive payoff of 30.

a. If P accept less party control what is the best response of M? Given this response, what is the payoff for the P?

b. If P doesn’t accept to alleviate the party control, what is the best answer for M?

c. What will each group do? Is there a way to improve the outcome?