Consider 3 neighbors (Ben, Jill and Lisa) deciding whether or not to have a streetlight inthe neighborhood. The light costs $600. They agree in advance that if the light is provided they would share the costs equally. Ben is willing to pay $150, Jill $175 and Lisa $450 for the light.

a) If the decision is made based on majority voting, what is the outcome? (5 pts)

b) Determine if each of Ben, Jill or Lisa is pivotal in the sense that her/his presence or absence will affect the (optimal) outcome. (5 pts)

c) Calculate the externality imposed by the presence or absence of each of them. (5pts)

d) Calculate the Clarke tax to be imposed on each of them so that they willtruthfully reveal their willingness to pay. (5 pts)

Answer rating: 100% (QA)

a If the decision is made based on majority voting the outcome will be determined by the preferences of the majority Lets compare the individual willi... View the full answer