Question

Government is considering building a public park in a small town ìBelleî. The cost of building this park is 120. There are three people in this town, Arnold, Ben, and Carrol. Each personís valuation of the park is 20, 30, and 80 respectively. But, government does not know these valuations.

(a) The government decides whether to build this park by majority voting. If majority supports building the park, then cost will be equally shared. What will be the outcome of majority voting?

(b) Government suggests that the cost of building the park will be financed through the government revenue in other towns. But government will only take this project when the benefit is higher than the cost. Government want survey these three to know the benefit of the park. Do you think this is the right plan to get the benefit of the park? Explain why or why not.

(c) Government suggests another plan. Government will survey these three to get the valuation of the park. If the sum of benefit is greater than the cost, cost will proportionately shared among three according to the reported valuation. For example, the reported valuation is 50, 60, and 70, then each cost share will be 50/(50+60+70), 60/(50+60+70), and 70/(50+60+70). Do you think this is the right plan to get the true valuation? Explain why or why not.

Answer 1

a) Suppose majority supports the construction of park. In that case cost of construction will be equally shared among Arnold, Ben and Carrol. So Cost per person will be 120/3 = 40 each. In case majority does not support building the park then government may drop the decision or decides something else.

b) No, surveying the three persons only is not right way to know the benefits of the park. The government should take into account other factors also. It should to take into account following benefits:

• Health benefits in terms of reduction in air pollution by reduction in concentration of poisonous gases.
• Rise in nearby property value as construction of park will lead to in increase in price of nearby property.
• If the size of park is big and it has cafes, restaurants then it will draw visitors . So tourism benefits should also be taken into account by government.
• People can also utilize a particular part of park for organizing parties and other gatherings at the payment of some expenses.
• Some swings, leisure activities, small sport activities can also be provided on payment of some nominal charges.
• Again benefits like storing of rainwater should also be taken into account.
• Income gained from parking of vehicles of the visitors should also be taken into account.

c) No, this is not the proper way of the valuation. A person may provide the valuation figure according to his personal interest. It can take into account following valuation costs to arrive at proper valuation costs.

• Cost of land used for the park.
• Cost of washrooms, drinking water facilities, benches in the park, water fountains and other infrastructural facilities should be taken into account.
• Cost of maintenance of flora and fauna in the park should be considered.
• Wages paid to staff members like gardeners, sweepers and other employees also form part of total cost.
• Cost of constructing cafes, restaurants should be taken into account.