JNU SIS 2018 Question 32: Market failure, externalities and public goods
Suppose Amit's true benefit from a public good is 52, while Salim's true benefit is 1. The cost of building of the public good is 1 and is to be shared equally by Amit and Salim, if it is built. The government decides to build the bridge if the net social benefits based on Amit and Salim's reported values of their respective benefits is non-negative. The total benefit from the public good is the sum of individual benefits.
In continuation of Question No. 31 above, suppose Amit can report his benefit from the public good as either 0 of 52, while Salim can report either 1 or 54. Which of the following is a weakly-dominant strategy equilibrium of the underlying game?
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Suppose Amit's true benefit from a public good is 2/5, while Salim's true benefit is 1. The cost of building of the public good is 1 and is to be shared equally by Amit and Salim, if it is built. The government decides to build the bridge if the net social benefits based on Amit and Salim's reported values of their respective benefits is non-negative. The total benefit from the public good is the sum of individual benefits. In continuation of Question No. 31 above, suppose Amit can report his benefit from the public good as either 0 of 2/5, while Salim can report either 1 or 4/5. Which of the following is a weakly-dominant strategy equilibrium of the underlying game? (A) Both Amit and Salim report their true types (B) Both Amit and Salim misreport (C) Amit reports the truth, while Salim does not (D) None of the above
Market failure, externalities and public goods has come up 114 times in 7 exams since 2006.
What this question tests
This question is on Free riding and preference revelation, part of Market failure, externalities and public goods in Microeconomics.
Why people understate their value for public goods, and mechanisms that elicit the truth.
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