David and Robert are considering contributing toward the creation of a building

Question

David and Robert are considering contributing toward the creation of a building mural. Each can choose whether to contribute $300 to the building mural or to keep that $300 for a weekend getaway. Since a building mural is a public good, both David and Robert will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.75 of benefit. For example, if both David and Robert choose to contribute, then a total of $600 would have been contributed to the building mural. So, David and Robert would each receive $450 of benefit from the building mural, and their combined benefit would be $900. Since a weekend getaway is a private good, if David chooses to spend $300 on a weekend getaway, David would get $300 of benefit from the weekend getaway and Robert wouldn't receive any benefit from David's choice. However, if Robert chooses to contribute $300 to the building mural, David would still receive the $225 of benefit from Robert's generosity. In other words, if David decides to keep the $300 for a weekend getaway and Robert decides to contribute the $300 to the public project, then David would receive a total benefit of $300$225 $525, Robert puld receive a total benefit of $225, and their combined benefit would be $750. The following table shows the combined benefits of David and Robert. As described previously, if both David and Robert contribute to the building mural, their combined benefit would be $900; this is shown in the upper left cell of the table. Similarly, if David keeps the $300 for a weekend getaway and Robert contributes to the project, their combined benefit would be $750; this is shown in the lower left cell of the table. Fill in the right-hand column of the table. Robert's Decision Contribute Don't Contribute Contribute $900 David's Decision Don't Contribute $750

Explanation / Answer

1. When robert doesn't contribute and   david Contribute:

robertl get benefit of 300 which he spend on weekend gateway and $ 225 i.e. 0.75 of $ 300 which david spend on public good. So, total benefit received by robert = 300 + 225 = $ 525

david gets benefit of $ 225 only.

Total benefit = $ 525 + $ 225 = $ 750

2. When robert and david do not contribute.

Both will get benefit of $ 300 which they spend on weekend gateway. So, total benefit = $ 600

3. When both davidand robert contribute in the building murnal.

4. david benefit when robert doesn't contribute: 0.75 of david investment X 300 = $ 225

5. david benefit when robert and she don't contribute: $ 300

6. Not to contribute

7. Not to contribute

8. "These results illustrate the free-rider problem"

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