9. 0) or yes Two people, A and B, are deciding whether to put effort into...

 

Transcribed Image Text:

9. 0) or yes Two people, A and B, are deciding whether to put effort into producing a public good or not. Each person, i, can either choose no effort ( S; = effort (S = 1). The total public good produced is G = SA + SB. The cost of doing no effort is 0. The cost of doing yes effort is 1.5. The payoff to a player is the total public goods provided ( G) minus her personal costs. B, SB, write down player A's utility from B. SB, write down player (a) Given a choice by player choosing no effort. (b) Given a choice by player choosing yes effort. (c) Comparing these two utilities, calculate player correspondence and write it down. A's utility from A's best response (d) Noticing that player B's problem is identical to player unique Nash equilibrium of this game? (e) What is the utilitarian optimum in this game? (f) In four sentences or less, explain why the Nash equilibrium represents a social dilemma and how this relates to the idea of positive externalities. (g) Suppose that you can offer a subsidy of 1 for choosing yes effort, but that for each person you pay that subsidy you must collect tax revenue equal to t > 1. Assume that you will split the tax burden equally among the two players, regardless of who participates. For what values of Pareto improving to offer the subsidy-and-tax plan? t is it A's, what is the 9. 0) or yes Two people, A and B, are deciding whether to put effort into producing a public good or not. Each person, i, can either choose no effort ( S; = effort (S = 1). The total public good produced is G = SA + SB. The cost of doing no effort is 0. The cost of doing yes effort is 1.5. The payoff to a player is the total public goods provided ( G) minus her personal costs. B, SB, write down player A's utility from B. SB, write down player (a) Given a choice by player choosing no effort. (b) Given a choice by player choosing yes effort. (c) Comparing these two utilities, calculate player correspondence and write it down. A's utility from A's best response (d) Noticing that player B's problem is identical to player unique Nash equilibrium of this game? (e) What is the utilitarian optimum in this game? (f) In four sentences or less, explain why the Nash equilibrium represents a social dilemma and how this relates to the idea of positive externalities. (g) Suppose that you can offer a subsidy of 1 for choosing yes effort, but that for each person you pay that subsidy you must collect tax revenue equal to t > 1. Assume that you will split the tax burden equally among the two players, regardless of who participates. For what values of Pareto improving to offer the subsidy-and-tax plan? t is it A's, what is the

Answer rating: 100% (QA)

a If player B chooses no effort SB 0 player As utility from choosing no effort SA 0 is the total public good produced G SA SB 0 minus her personal cos... View the full answer