Attempts:% Keep the Highest: 5 3. Voluntary contributions toward a public good B
ID: 1216996 • Letter: A
Question
Attempts:% Keep the Highest: 5 3. Voluntary contributions toward a public good Bob and Eric 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 new suit. Since a building mural is a public good, both Bob and Eric 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 Bob and Eric choose to contribute, then a total of $600 would be contributed to the building mural. So, Bob and Eric would each receive $540 of benefit from the building mural, and their combined benefit would be $1,080. This is shown in the upper left cell of the first table. Since a new suit is a private good, if Bob chooses to spend $300 on a new suit, Bob would get $300 of benefit from the new suit and Eric wouldn't receive any benefit from Bob's choice. If Bob still spends $300 on a new suit and Eric chooses to contribute $300 to the building mural, Bob would still receive the $270 of benefit from Eric's generosity. In other words, if Bob decides to keep the $300 for a new suit and Eric decides to contribute the $300 to the public project, then Bob would receive a total benefit of $300+$270= $570, Eric would receive a total benefit of $270, and their combined benefit would be $840. This is shown in the lower left cell of the first table.Explanation / Answer
Answer to blank1: Don't Contribute
Answer to blank2: Don't Contribute
Answer to blank3: Prisoner's dilemma
Eric Bob Contribute Don't Contribute Contribute $1080 $840 Don't Contribute $840 $600Related Questions
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