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?
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Frontiers Of Microeconomics
Section: Chapter Questions
Problem 3QR
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