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Then, in the coordinated equilibrium, donor 1 will reciprocate the increased aid given by donor 2 at a point such as C, where a* a N. Point C is located 1 1 on a lower indifference curve than point N--thus corresponding to a lower value of the loss function (2)--and so donor 1 is better off in this coordinated equilibrium point than in the Nash equilibrium.
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