Question

In: Economics

Jami and Fred are two neighbors and they are trying to decide if they should put...

  1. Jami and Fred are two neighbors and they are trying to decide if they should put a hedge between their two yards to increase their privacy. The cost of the hedge would be $1,000. Jami values the hedge at $800 and Fred values the hedge at $600. If there is no hedge the status quo remains and they each have net benefits of zero. The plan would be for each neighbor to contribute half of the cost for the hedge. Whoever calls the landscaper will have to pay at the time of the service and collect the other neighbors contribution on their own.
  1. Would either person be willing to pay for the service on their own? Explain whether or not this example illustrates the point that public goods tend to be underprovided.
  2. Create a payoff matrix for this game.
  3. Write down the outcomes of all four of the potential moves.
  4. What is the Nash Equilibrium for this game?
  5. Is this an example of a “prisoner’s dilemma” game? Explain.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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