David and Robert are considering contributing toward the creation of a public pa

Question

David and Robert are considering contributing toward the creation of a public park. Each can choose whether to contribute $300 to the public park or to keep that $300 for a pool table Since a public park is a public good, both David and Robert will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.75 of benefit. For example, if both David and Robert choose to contribute, then a total of $600 would have been contributed to the public park. So, David and Robert would each receive $450 of benefit from the public park, and their combined benefit would be $900 Since a pool table is a private good, if David chooses to spend $300 on a pool table, David would get $300 of benefit from the pool table and Robert wouldn't receive any benefit from David's choice. However, if Robert chooses to contribute $300 to the public park, David would still receive the $225 of benefit from Robert's generosity. In other words, if David decides to keep the $300 for a pool table and Robert decides to contribute the $300 to the public project, then David would receive a total benefit of $300 + $225 = $525, Robert would receive a total benefit of $225, and their combined benefit would be $750 The following table shows the combined benefits of David and Robert. As described previously, if both David and Robert contribute to the public park, their combined benefit would be $900; this is shown in the upper left cell of the table. Similarly, if David keeps the $300 for a pool table and Robert contributes to the project, their combined benefit would be $750; this is shown in the lower left cell of the table. Fill in the right-hand column of the table Robert's Decision Contribute Don't Contribute Contribute $900 David's Decision Don't Contribute $750

Explanation / Answer

Robert

C D

C 450+450 225+525

David

D 525+225 300+300

When no one contributes then payoff is $600

When either of them contributes then $750

When both of them mcontributes then $900

Hence When both of thm contributes gives higest benefit

   Robert

C D

C 450 225

David

D 525 300

In both the case when Robert decides to copoperate or not David choose not to co operate

This is Free rider problem

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