3. Voluntary contributions toward a public good Tim and Brian are considering co

Question

3. Voluntary contributions toward a public good

Tim and Brian are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $300 to the botanical garden or to keep that $300 for a weekend getaway.

Since a botanical garden is a public good, both Tim and Brian will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.90 of benefit. For example, if both Tim and Brian choose to contribute, then a total of $600 would be contributed to the botanical garden. So, Tim and Brian would each receive $540 of benefit from the botanical garden, and their combined benefit would be $1,080. This is shown in the upper left cell of the first table.

Complete the following table, which shows the combined benefits of Tim and Brian as previously described.

Of the four cells of the table, which gives the greatest combined benefits to Tim and Brian?

When both Tim and Brian contribute to the botanical garden

When neither Tim nor Brian contributes to the botanical garden

When Tim contributes to the botanical garden and Brian doesn't, or vice versa

Now, consider the incentive facing Tim individually. The following table looks similar to the previous one, but this time, it is partially completed with theindividual benefit data for Tim. As shown previously, if both Tim and Brian contribute to a public good, Tim receives a benefit of $540. On the other hand, if Brian contributes to the botanical garden and Tim does not, Tim receives a benefit of $570.

Complete the right-hand column of the following table which shows the individual benefits of Tim.

Hint: You are not required to consider the benefit of Brian.

If Brian decides to contribute to the botanical garden, Tim would maximize his benefit by choosing to    to the botanical garden. On the other hand, if Brian decides not to contribute to the botanical garden, Tim would maximize his benefit by choosing to    to the botanical garden.

These results illustrate   .

Brian Contributes Doesn’t contribute Tim Contributes $1,080 Doesn’t contribute $840

Explanation / Answer

so, When both Tim and Brian contribute to the botanical garden, they gets the greatest combined benefit.

If Brian decides to contribute to the botanical garden, Tim would maximize his benefit by choosing to not to contribute to the botanical garden. On the other hand, if Brian decides not to contribute to the botanical garden, Tim would maximize his benefit by choosing to not to contribute    to the botanical garden.

these results shows the problem of free-rider problem and market failure in case of public good production.

Brian Brian Contributes
Doesn’t contribute Tim Contributes $1080 $840 Tim Don’t contribute $840 $600

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