S. Voluntary contributions toward a public good Andrew and Darnell are consideri
ID: 1116350 • Letter: S
Question
S. Voluntary contributions toward a public good Andrew and Darnell are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $300 to the botanical garden or to keep that $300 for a weekend getaway. Since a botanical garden is a public good, both Andrew and Darnell will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.90 of benefit. For example, if both Andrew and Darnell choose to contribute, then a total of $600 would be contributed to the botanical garden. So, Andrew and Darnell would each receive $540 of benefit from the botanical garden, and their combined benefit would be $1,080. This is shown in the upper left cell of the first table. Since a weekend getaway is a private good, if Andrew chooses to spend $300 on a weekend getaway, Andrew would get $300 of benefit from the weekend getaway and Darnell wouldn't receive any benefit from Andrew's choice. If Andrew still spends $300 on a weekend getaway and Darnell chooses to contribute $300 to the botanical garden, Andrew would still receive the $270 of benefit from Darnell's generosity. In other words, if Andrevw decides to keep the $300 for a weekend getaway and Darnell decides to contribute the $300 to the public project, then Andrew would receive a total benefit of $300+ S270-S570, Darnell would receive a total benefit of $270, and their combined benefit would be $840·This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Andrew and Darnell as previously described. Darnell Contributes Doesn't contribute Contributes 1,080 Andrew Doesn't contribute $840 Of the four cells of the table, which gives the greatest combined benefits to Andrew and Darnell? When neither Andrew nor Darnell contributes to the botanical garden O When both Andrew and Darnell contribute to the botanical garden When Andrew contributes to the botanical garden and Darnell doesn't, or vice versa Now, consider the incentive facing Andrew individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Andrew. As shown previously, if both Andrew and Darnell contribute to a public good, Andrew receives a benefit of $540. On the other hand, if Darnell contributes to the botanical garden and Andrew does not, Andrew receives a benefit of $570Explanation / Answer
Each can choose whether to contribute $300 to botanical garden or keep it for weekend gateway . If both choose to contribute then ,total of $600 would be contributed to th botanical garden. Each would receive $540 of benefit. Cobined benefit would be if $1,080 .
Now, weekend gateway is a private good , so if Andrew chooses to spend on weekend gateway , Andrew would get $300of benefit from this and darnell wouln't receive any benefit from this . And if Darnell contribute to the botanical garden then , Andrew would receive total of (270 + 300) =$570 benefit while darnell would receive only $270. Similarly with Darnell case , if darnell contribute to the weekend gateway and andrew for Botanical garden then, Darnell total benefit = ($270+300) = $570 and Andrew = $270. And when both doesn't contribute to the public good then each would receive benefit of $300.
Combined benefits of andrew and darnell are :
Of the four cells of the table, which gives the greatest combined benefits to Andrew and Darnell is when both Andrew and Darnell contribute to the botanical garden .Because then the combined benefit is of $1080.
Now individual benefits of Andrew and Darnell:
If Darnell decides to contribute to the botanical garden , Andrew would maximize his benefit by choosing doesn't contribute to the botanical garden because Andrew would get the benefit of $570 compare to contribute gives benefit of $540. On the other hand, if Darnell decides not to contribute to the botanical garden , Andrew would maximize his benefit by choosing doesn't contribute to the botanical garden. because Andrew would get benefit of $300 , compare to contribute gives benefit of $270.
These results illustrate the FREE RIDER PROBLEM. because each one wants that the other one will contribute to the public good and he/she can consume it free (without contributing fot it).
DARNELL Contribute Doesn't contribute ANDREW Contribute $ 1,080 $(270 +570) = $840 Doesn't contribute $ 840 $ (300 + 300) = $600Related Questions
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