Question

Consider a society with three individuals deciding whether or not to build a bridge. Adam and Bob get 5 utils from building the bridge, and Cathy gets -20 utils. Does the Median Voter Theorem predict the bridge gets built? Suppose individuals can lobby the government at a disutility of 10. Does the Theory of Collective Action predict the bridge gets built?

Answer 1

Public good is provided when social marginal benefits is greater than social marginal costs. We can clearly see that socail marginal benefits is 10 (5+5) whereas social marginal cost is 20. Although, bridge will get built because under median voter theorem, median outcome is an equilibrium outcome. But we can see that this median outcome is also an inefficient outcome.

Adam and Bob will get the total utility of 10 if bridge get built but cathy disutility will be -20 if gets built. So, cathy can lobby the government at disutility of -10 (10-20) for not building the bridge. Hence, under theory of collective action predict that bridge won't gets built.