Question 2 [Word limit: 500] Consider the following game, called a voluntary contribution mechanism (VCM), as we discussed in the lecture. In this game, n players are each given an endowment y. Each player simultaneously selects an amount, ci, to contribute to provision of a public good, and 0 ≤ c < y; i = 1, 2, n. Each player's payoff is: n ♫₁ = y − C₁ + mΣ cj, where m indicates the marginal return from the public good j=1 The game may be one-shot or repeated. We shall assume the following parameters for the game: n = 8; m = 0.4; y $15. = a. Why, assuming rational self-interested preferences, is the best response to contribute nothing and for all players not to contribute? Explain your answer with numerical numbers, given the parameter values, and intuitively. b. Why are payoffs maximized if all players (1 to n) contribute? Explain your answer with numerical numbers given the parameter values. c. Given your explanations to a. and b. above, why, then do we call this a public goods game and what other kind of game does it resemble?
Question 2 [Word limit: 500] Consider the following game, called a voluntary contribution mechanism (VCM), as we discussed in the lecture. In this game, n players are each given an endowment y. Each player simultaneously selects an amount, ci, to contribute to provision of a public good, and 0 ≤ c < y; i = 1, 2, n. Each player's payoff is: n ♫₁ = y − C₁ + mΣ cj, where m indicates the marginal return from the public good j=1 The game may be one-shot or repeated. We shall assume the following parameters for the game: n = 8; m = 0.4; y $15. = a. Why, assuming rational self-interested preferences, is the best response to contribute nothing and for all players not to contribute? Explain your answer with numerical numbers, given the parameter values, and intuitively. b. Why are payoffs maximized if all players (1 to n) contribute? Explain your answer with numerical numbers given the parameter values. c. Given your explanations to a. and b. above, why, then do we call this a public goods game and what other kind of game does it resemble?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Urgent!
Please help me solve as much as possible questions from this exercise, I need your help!
Thank you very much!
![Question 2 [Word limit: 500]
Consider the following game, called a voluntary contribution mechanism (VCM), as
we discussed in the lecture. In this game, ʼn players are each given an endowment y.
Each player simultaneously selects an amount, ci, to contribute to provision of a
public good, and 0 ≤ ci ≤ y; i = 1, 2, n. Each player's payoff is:
n
Ti = y Ci + m
Σc;, where m indicates the marginal return from the public good
j=1
The game may be one-shot or repeated. We shall assume the following parameters
for the game: n = 8; m = 0.4; y = $15.
a. Why, assuming rational self-interested preferences, is the best response to
contribute nothing and for all players not to contribute? Explain your answer
with numerical numbers, given the parameter values, and intuitively.
b. Why are payoffs maximized if all players (1 to n) contribute? Explain your
answer with numerical numbers given the parameter values.
c.
Given your explanations to a. and b. above, why, then do we call this a public
goods game and what other kind of game does it resemble?
d. Why, given the rational self-interested best response you proposed above, do
we find empirically that many subjects contribute in one-shot public goods
games and in public goods game repeated for many rounds?
e. Why, given your answer to c., might contributions decline over repeated
games? Why does this not reflect 'learning'?
f. What role does punishment play in promoting or inhibiting cooperation in
public goods games?
g. Why might non-contribution be a rational and self-interested best response to
the existence of punishment? What would a rational and self-interested player
who has the ability to punish do in a VCM with punishment?
h. What are the best responses in a VCM if the parameter m > 1? Why?
i. If them in the game above increased to 0.6, what would we predict if players
had self-interested preferences? If players had social preferences? Why?
j. What are the Pareto-efficient outcomes in a VCM when mn < 1? Why?
k. How does 'leadership' affect contribution to public good? Give an example.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd47a24aa-7b8f-484a-b8c5-137cef1c08d3%2F8fded131-db95-4246-b4ad-bb060c8c89b9%2Fmm8mcph_processed.png&w=3840&q=75)
Transcribed Image Text:Question 2 [Word limit: 500]
Consider the following game, called a voluntary contribution mechanism (VCM), as
we discussed in the lecture. In this game, ʼn players are each given an endowment y.
Each player simultaneously selects an amount, ci, to contribute to provision of a
public good, and 0 ≤ ci ≤ y; i = 1, 2, n. Each player's payoff is:
n
Ti = y Ci + m
Σc;, where m indicates the marginal return from the public good
j=1
The game may be one-shot or repeated. We shall assume the following parameters
for the game: n = 8; m = 0.4; y = $15.
a. Why, assuming rational self-interested preferences, is the best response to
contribute nothing and for all players not to contribute? Explain your answer
with numerical numbers, given the parameter values, and intuitively.
b. Why are payoffs maximized if all players (1 to n) contribute? Explain your
answer with numerical numbers given the parameter values.
c.
Given your explanations to a. and b. above, why, then do we call this a public
goods game and what other kind of game does it resemble?
d. Why, given the rational self-interested best response you proposed above, do
we find empirically that many subjects contribute in one-shot public goods
games and in public goods game repeated for many rounds?
e. Why, given your answer to c., might contributions decline over repeated
games? Why does this not reflect 'learning'?
f. What role does punishment play in promoting or inhibiting cooperation in
public goods games?
g. Why might non-contribution be a rational and self-interested best response to
the existence of punishment? What would a rational and self-interested player
who has the ability to punish do in a VCM with punishment?
h. What are the best responses in a VCM if the parameter m > 1? Why?
i. If them in the game above increased to 0.6, what would we predict if players
had self-interested preferences? If players had social preferences? Why?
j. What are the Pareto-efficient outcomes in a VCM when mn < 1? Why?
k. How does 'leadership' affect contribution to public good? Give an example.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education