Residents of two districts, Oz and Wonderland, initially fall into two types: blue (B) and red (R). In Oz, there are 500 blue residents and 1000 red residents, while in Wonderland there are 1000 blue residents and 500 red residents. Blue residents earn a regular passive income of YB = 12,000, while red residents' passive income is Y₁ = 2,000 due to their lower initial endowments. Both districts provide a local public good for their residents, G. Utility is given by V₁ = 4Y (G+)-G² for i= B, R. The cost of the local public good per resident is C = 23G-8, everywhere. Provision of this good takes place at the local government level, with the amount of provision chosen by majority vote within each district. (b) In this post-migration equilibrium, what amounts of local public good would be provided in each location? Show all workings. (c) Show that the decentralisation theorem holds, contrasting the uniform provision level that would be chosen by a central planner with the locally determined provision levels found in part (b)

Residents of two districts, Oz and Wonderland, initially fall into two types: blue (B) and red (R). In Oz, there are 500 blue residents and 1000 red residents, while in Wonderland there are 1000 blue residents and 500 red residents. Blue residents earn a regular passive income of YB = 12,000, while red residents' passive income is Y₁ = 2,000 due to their lower initial endowments. Both districts provide a local public good for their residents, G. Utility is given by V₁ = 4Y (G+)-G² for i= B, R. The cost of the local public good per resident is C = 23G-8, everywhere. Provision of this good takes place at the local government level, with the amount of provision chosen by majority vote within each district. (b) In this post-migration equilibrium, what amounts of local public good would be provided in each location? Show all workings. (c) Show that the decentralisation theorem holds, contrasting the uniform provision level that would be chosen by a central planner with the locally determined provision levels found in part (b)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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