Consider the simple type of public goods experiment that we discussed in class and that is discussed in the Gruber text. Individuals are formed into a group of size 10. Each individual in the group is given 10 tokens. Individuals are told that they can either keep their tokens or put their tokens into a common pot. Tokens in the pot will be doubled and divided equally among the 10 individuals in the group. At the end of the experiment, tokens will be cashed out for $1 per token. Individuals make their token allocation decision simultaneously and anonymously. a. Explain why the non-cooperative Nash equilibrium prediction is that no tokens are put into the common pot, i.e. the public good is not provided. b. What is the socially efficient allocation of the tokens?

Consider the simple type of public goods experiment that we discussed in class and that is discussed in the Gruber text. Individuals are formed into a group of size 10. Each individual in the group is given 10 tokens. Individuals are told that they can either keep their tokens or put their tokens into a common pot. Tokens in the pot will be doubled and divided equally among the 10 individuals in the group. At the end of the experiment, tokens will be cashed out for $1 per token. Individuals make their token allocation decision simultaneously and anonymously. a. Explain why the non-cooperative Nash equilibrium prediction is that no tokens are put into the common pot, i.e. the public good is not provided. b. What is the socially efficient allocation of the tokens?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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