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Exercise 1.9. The pivotal mechanism is used to decide whether a new park should be built. There are 5 individuals. According to the proposed project, the cost of the park would be allocated as follows: individual 1 2 3 4 5 share of cost C₁ = $30 C₂ = $25 C3 = $25 C4 = $15 С5 $5 1, For every individual i = perceived gross loss, if negative) from having the park built. The v/s are as follows: 5, let v, be the perceived gross benefit (if positive; individual 1 2 3 4 5 gross benefit V₁ = $60 V2= $15 V3 = $55 V4 = $-25 V5 = $-20 (Thus the net benefit (loss) to individual / is V, -C). Individual / has the following utility of wealth function (where m, denotes the wealth of individual 1): m₁ if the project is not carried out U₁ = m.+Vi if the project is carried out (Let m, be the initial endowment of money of individual / and assume that m is large enough that it exceeds c, plus any tax that the individual might have to pay.) (a) What is the Pareto-efficient decision: to build the park or not?

Exercise 1.9. The pivotal mechanism is used to decide whether a new park should be built. There are 5 individuals. According to the proposed project, the cost of the park would be allocated as follows: individual 1 2 3 4 5 share of cost C₁ = $30 C₂ = $25 C3 = $25 C4 = $15 С5 $5 1, For every individual i = perceived gross loss, if negative) from having the park built. The v/s are as follows: 5, let v, be the perceived gross benefit (if positive; individual 1 2 3 4 5 gross benefit V₁ = $60 V2= $15 V3 = $55 V4 = $-25 V5 = $-20 (Thus the net benefit (loss) to individual / is V, -C). Individual / has the following utility of wealth function (where m, denotes the wealth of individual 1): m₁ if the project is not carried out U₁ = m.+Vi if the project is carried out (Let m, be the initial endowment of money of individual / and assume that m is large enough that it exceeds c, plus any tax that the individual might have to pay.) (a) What is the Pareto-efficient decision: to build the park or not?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Exercise 1.9. The pivotal mechanism is used to decide whether a new park should be built. There are 5 individuals. According to the proposed project, the cost of the park would be allocated as follows: individual 1 2 3 4 5 share of cost C₁ = $30 C₂ = $25 C3 = $25 C4 = $15 С5 $5 1, For every individual i = perceived gross loss, if negative) from having the park built. The v/s are as follows: 5, let v, be the perceived gross benefit (if positive; individual 1 2 3 4 5 gross benefit V₁ = $60 V2= $15 V3 = $55 V4 = $-25 V5 = $-20 (Thus the net benefit (loss) to individual / is V, -C). Individual / has the following utility of wealth function (where m, denotes the wealth of individual 1): m₁ if the project is not carried out U₁ = m.+Vi if the project is carried out (Let m, be the initial endowment of money of individual / and assume that m is large enough that it exceeds c, plus any tax that the individual might have to pay.) (a) What is the Pareto-efficient decision: to build the park or not?
Transcribed Image Text:Exercise 1.9. The pivotal mechanism is used to decide whether a new park should be built. There are 5 individuals. According to the proposed project, the cost of the park would be allocated as follows: individual 1 2 3 4 5 share of cost C₁ = $30 C₂ = $25 C3 = $25 C4 = $15 С5 $5 1, For every individual i = perceived gross loss, if negative) from having the park built. The v/s are as follows: 5, let v, be the perceived gross benefit (if positive; individual 1 2 3 4 5 gross benefit V₁ = $60 V2= $15 V3 = $55 V4 = $-25 V5 = $-20 (Thus the net benefit (loss) to individual / is V, -C). Individual / has the following utility of wealth function (where m, denotes the wealth of individual 1): m₁ if the project is not carried out U₁ = m.+Vi if the project is carried out (Let m, be the initial endowment of money of individual / and assume that m is large enough that it exceeds c, plus any tax that the individual might have to pay.) (a) What is the Pareto-efficient decision: to build the park or not?
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