Two towns, each with three members, are deciding whether to put on a fireworks display to celebrate the New Year. Fireworks cost $360. In each town, some people enjoy fireworks more than others.

a. In the town of Bayport, each of the residents values the public good as follows:

Frank....................$50

Joe.....................$100

Callie..................$300

Would fireworks pass a cost-benefit analysis? Explain.

b. The mayor of Bayport proposes to decide by majority rule and, if the fireworks referendum passes, to split the cost equally among all residents. Who would vote in favor, and who would vote against? Would the vote yield the same answer as the cost-benefit analysis?

c. In the town of River Heights, each of the residents values the public good as follows:

Nancy....................$20

Bess.....................$140

Ned.....................$160

Would fireworks pass a cost-benefit analysis? Explain.

d. The mayor of River Heights also proposes to decide by majority rule and, if the fireworks referendum passes, to split the cost equally among all residents. Who would vote in favor, and who would vote against? Would the vote yield the same answer as the cost-benefit analysis?

e. What do you think these examples say about the optimal provision of public goods?