The neighboring towns of Arlington and Belmont are trying to decide in which locality to site a new waste incinerator. The towns will share the benefits of the facility and also share the costs. Each estimates its net benefit from the incinerator to be $10 million. However, each reckons a $6 million economic cost (due to lower neighborhood property values, environmental and safety concerns) from having the incinerator located in its town.
a. Construct the payoff table listing the towns’ possible actions and overall net benefits.
b. Determine the (Nash) equilibrium (or equilibria) of the game. Explain.
c. What arrangement might induce one of the towns to willingly accept the facility?