The Rand Formula and the Free Rider Problem. Imagine there are two workers, Abel and Baker, who are asked to pay union dues. The personal cost of contributing is $7 and the benefit of the contribution is $12. It is a good idea for workers as a whole to pay dues, as the benefit is greater than the cost. Each person contributing $7 would receive a benefit of $12. However, individuals have an incentive to free ride, since the benefit of the collective agreement is available to all workers. This can be seen as an application of the Prisoners Dilemma game.

a) Fill in the payoff matrix below.

	B pays dues	B does not pay dues
A pays dues	A pays _____gets_____benefit therefore net benefit=_______ B pays _____gets_____benefit therefore net benefit=_______	A pays _____gets_____benefit therefore net benefit=_______ B pays _____gets_____benefit therefore net benefit=_______
A does not pay dues	A pays _____gets_____benefit therefore net benefit=_______ B pays _____gets_____benefit therefore net benefit=_______	A pays _____gets_____benefit therefore net benefit=_______ B pays _____gets_____benefit therefore net benefit=_______

b) Explain why workers have an incentive to free ride, and the implication for the success of the union.

c) How does the above characterization relate to the issue at the heart of the 1945 Windsor strike at Ford? How did Justice Rand resolve this issue and what was the implication for labour relations and unionization in Canada?

Answer rating: 100% (QA)

a Payoff matrix beginarrayccc hline B pays dues B does not pay dues hline A pays dues A pays 7 gets ... View the full answer