Voluntary contributions toward a public good Larry and Raphael are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a new suit. Since a public park is a public good, both Larry and Raphael will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Larry and Raphael choose to contribute, then a total of $800 would be contributed to the public park. So, Larry and Raphael would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a new suit is a private good, if Larry chooses to spend $400 on a new suit, Larry would get $400 of benefit from the new suit and Raphael wouldn't receive any benefit from Larry's choice. If Larry still spends $400 on a new suit and Raphael chooses to contribute $400 to the public park, Larry would still receive the $320 of benefit from Raphael's generosity. In other words, if Larry decides to keep the $400 for a new suit and Raphael decides to contribute the $400 to the public project, then Larry would receive a total benefit of $400+$320=$720, Raphael would receive a total benefit of $320, and their combined benefit would be $1,040. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Larry and Raphael as previously described. Raphael Contributes Doesn't contribute Larry Contributes $1,280 $ Doesn't contribute $1,040 $ Of the four cells of the table, which gives the greatest combined benefits to Larry and Raphael? When both Larry and Raphael contribute to the public park When Larry contributes to the public park and Raphael doesn't, or vice versa When neither Larry nor Raphael contributes to the public park Now, consider the incentive facing Larry individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Larry. As shown previously, if both Larry and Raphael contribute to a public good, Larry receives a benefit of $640. On the other hand, if Raphael contributes to the public park and Larry does not, Larry receives a benefit of $720. Complete the right-hand column of the following table, which shows the individual benefits of Larry. Hint: You are not required to consider the benefit of Raphael. Raphael Contribute Doesn't contribute Larry Contribute $640, -- $ , -- Doesn't contribute $720, -- $ , -- If Raphael decides to contribute to the public park, Larry would maximize his benefit by choosing to the public park. On the other hand, if Raphael decides not to contribute to the public park, Larry would maximize his benefit by choosing to the public park. These results illustrate .
3. Voluntary contributions toward a public good
Larry and Raphael are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a new suit.
Since a public park is a public good, both Larry and Raphael will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Larry and Raphael choose to contribute, then a total of $800 would be contributed to the public park. So, Larry and Raphael would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table.
Since a new suit is a private good, if Larry chooses to spend $400 on a new suit, Larry would get $400 of benefit from the new suit and Raphael wouldn't receive any benefit from Larry's choice. If Larry still spends $400 on a new suit and Raphael chooses to contribute $400 to the public park, Larry would still receive the $320 of benefit from Raphael's generosity. In other words, if Larry decides to keep the $400 for a new suit and Raphael decides to contribute the $400 to the public project, then Larry would receive a total benefit of $400+$320=$720, Raphael would receive a total benefit of $320, and their combined benefit would be $1,040. This is shown in the lower left cell of the first table.
Complete the following table, which shows the combined benefits of Larry and Raphael as previously described.
Raphael
Contributes Doesn't contribute
Larry Contributes $1,280
$
Doesn't contribute $1,040
$
Of the four cells of the table, which gives the greatest combined benefits to Larry and Raphael?
When both Larry and Raphael contribute to the public park
When Larry contributes to the public park and Raphael doesn't, or vice versa
When neither Larry nor Raphael contributes to the public park
Now, consider the incentive facing Larry individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Larry. As shown previously, if both Larry and Raphael contribute to a public good, Larry receives a benefit of $640. On the other hand, if Raphael contributes to the public park and Larry does not, Larry receives a benefit of $720.
Complete the right-hand column of the following table, which shows the individual benefits of Larry.
Hint: You are not required to consider the benefit of Raphael.
Raphael
Contribute Doesn't contribute
Larry Contribute $640, --
$
, --
Doesn't contribute $720, --
$
, --
If Raphael decides to contribute to the public park, Larry would maximize his benefit by choosing to the public park. On the other hand, if Raphael decides not to contribute to the public park, Larry would maximize his benefit by choosing to the public park.
These results illustrate .
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