Chapter 11 HW 3. Voluntary contributions toward a public good Paolo and Van are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $300 to the botanical garden or to keep that $300 for a pool table. Since a botanical garden is a public good, both Paolo and Van will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.90 of benefit. For example, if both Paolo and Van choose to contribute, then a total of $600 would be contributed to the botanical garden. So, Paolo and Van would each receive $540 of benefit from the botanical garden, and their combined benefit would be $1,080. This is shown in the upper left cell of the first table. Since a pool table is a private good, If Paolo chooses to spend $300 on a pool table, Paolo would get $300 of benefit from the pool table and Van wouldn't receive any benefit from Paolo's choice. If Paolo still spends $300 on a pool table and Van chooses to contribute $300 to the botanical garden, Paolo would still receive the $270 of benefit from Von's generosity. In other words, if Paolo decides to keep the $300 for a pool table and van decides to contribute the $300 to the public project, then Paolo would receive a total benefit of $300 + $270 = $570, Van would receive a total benefit of $270, and their combined benefit would be $840. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Paolo and Van as previously described. Van Contributes Doesn't contributo $1,080 5840 Contributes Doesn't contribute Paolo of the four cells of the table, which gives the greatest combined benefits to Paolo and Van2 When both Paolo and Van contribute to the botanical garden M DO Home CENGAGE MINDTAP Desmos Empowe MindTap Q Search Chapter 11 HW of the four cells of the table, which gives the greatest combined benefits to Paolo and Van? When both Paolo and Van contribute to the botanical garden When Paolo contributes to the botanical garden and Van doesn't, or vice versa When neither Paolo nor Van contributes to the botanical garden Now, consider the incentive facing Paolo individually. The following table fooks similar to the previous one, but this time, it is partially completed with the Individual benefit data for Paolo. As shown previously, if both Paolo and Van contribute to a public good, Paolo receives a benefit of $540. On the other hand, if Van contributes to the botanical garden and Paolo does not, Paolo receives a benefit of $570. Complete the right hand column of the following table, which shows the Individual benefits of Paolo Hint: You are not required to consider the benefit of Van. Van Doesn't contribute Contribute $540,- Contribute Paolo Doesn't contribute $570,- If Van decides to contribute to the botanical garden, Paolo would maximize his benefit by choosing the other hand, if van decides not to contribute to the botanical garden, Paolo would maximize his benefit by choosing botanical garden to the botanical garden on to the These results illustrate
