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Kenji and Paolo are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $400 to the botanical garden or
Kenji and Paolo are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $400 to the botanical garden or to keep that $400 for a pool table. Since a botanical garden is a public good, both Kenji and Paolo will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Kenji and Paolo choose to contribute, then a total of $800 would be contributed to the botanical garden. So, Kenji and Paolo would each receive $640 of benefit from the botanical garden, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Kenji chooses to spend $400 on a pool table, Kenji would get $400 of benefit from the pool table and Paolo wouldn't receive any benefit from Kenji's choice. If Kenji still spends $400 on a pool table and Paolo chooses to contribute $400 to the botanical garden, Kenji would still receive the $320 of benefit from Paolo's generosity. In other words, if Kenji decides to keep the $400 for a pool table and Paolo decides to contribute the $400 to the public project, then Kenji would receive a total benefit of $400+ $320 = $720, Paolo would receive a total benefit of $320, and their combined benefit would be $1,040. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Kenji and Paolo as previously described. Paolo Contributes Doesn't contribute Contributes $1,280 Kenji Doesn't contribute $1,040 S Of the four cells of the table, which gives the greatest combined benefits to Kenji and Paolo? When neither Kenji nor Paolo contributes to the botanical garden When Kenji contributes to the botanical garden and Paolo doesn't, or vice versa When both Kenji and Paolo contribute to the botanical garden Complete the following table, which shows the combined benefits of Kenji and Paolo as previously described. Paolo Contributes Doesn't contribute Contributes $1,280 Kenji Doesn't contribute $1,040 $ Of the four cells of the table, which gives the greatest combined benefits to Kenji and Paolo? When neither Kenji nor Paolo contributes to the botanical garden. When Kenji contributes to the botanical garden and Paolo doesn't, or vice versa When both Kenji and Paolo contribute to the botanical garden Now, consider the incentive facing Kenji individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Kenji. As shown previously, if both Kenji and Paolo contribute to a public good, Kenji receives a benefit of $640. On the other hand, if Paolo contributes to the botanical garden and Kenji does not, Kenji receives a benefit of $720. Complete the right-hand column of the following table, which shows the individual benefits of Kenji. Hint: You are not required to consider the benefit of Paolo. Paolo Doesn't contribute Contribute Kenji Doesn't contribute Contribute $640,- $720,- $ Kenji Contribute Paolo. Contribute Doesn't contribute $640.- S Doesn't contribute $720,- If Paolo decides to contribute to the botanical garden, Kenji would maximize his benefit by choosing On the other hand, if Paolo decides not to contribute to the botanical garden, Kenji would maximize the botanical garden. These results illustrate ing not to contribute to contribute to the botanical garden. to If Paolo decides to contribute to the botanical garden, Kenji would maximize his benefit by choosing, On the other hand, if Paolo decides not to contribute to the botanical garden, Kenji would maximize his benefit by choosing the botanical garden. These results illustrate to the botanical garden. not to contribute to contribute to Kenji Doesn't contri If Paolo decides to cont On the other hand, if P the botanical garden. These results illustrate the free-rider problem the Tragedy of the Commons. why markets are efficient the creation of a positive externality buld maximize his benefit by choosin tanical garden, Kenji would maximiz
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