public good (1)

Question 1

Assumptions

Answer 1

initial wealth’s
Consumption good g
Contributions g1 and g2
cost of public good
final wealth’s
c <= g1 + g2
Utility functions
Reservation price
what do allocations need to satisfy
Only one allocation without the public good

Question 2

Reservation price

Answer 2

How you value the public good. Amount individual is indifferent between having the public good and some final wealth, and not having the public good but having their full final wealth.

Question 3

Combined reservation price exceeding cost of public good.

Answer 3

This is a necessary and sufficient condition for the provision of the public good.

Question 4

Provision of public good, what is it dependent on?

Answer 4

Depends on its cost and initial wealth through the reservation prices.

Question 5

When can (w1,w2,0) be pe

Answer 5

When r1>w1 or r2>w2. c < r1 + r2 is no longer a sufficient condition for the provision of the public good to be a preto improvement.

Question 6

No income effect utility functions (quasi linear)

Answer 6

u1(x1,G) = x1 + V1(G)
u2(x2,G) = x2 + v2(G)
Leads to reservation price being independent of wealth. PROVE NOW

Question 7

How to provide public good

Answer 7

Voluntary contribution. Individuals report their reservation price (incentive to under-report since then they pay less). Left with more final wealth. Private information. Free riding, can lead to public good not being provisioned