Question

Question 1 [30 marks] Chapter 1 of Bowles and Halliday opens with a quote of philoso- pher David Hume about two neighbours attempting to drain a meadow that lies on common land (p. 23). Suppose that those two neighbours, Andrew (A) and Bernard (B), take part in such a game, which can be described as follows:

• it costs each neighbour c > 0 to take part in draining the meadow;
• it takes two neighbours to fully drain the meadow;
• the benefit to each neighbour of a fully drained meadow is a > 0;
• the benefit to each neighbour of a partially-drained meadow is b > 0;
• the benefit to each neighbour of a swampy meadow (i.e. one not at all drained) is d.

a) [5 marks] In light of the above description of Hume’s meadow-draining situation, represent it as a game in normal/strategic form.

Answer 1

The net benefit from the strategy (drain,drain) is the benefit from a fully drained meadow minus the cost incurred by each neighbour.

The net benefit from the strategy (drain, not drain) and (not drain, drain) is the benefit from a partially drained meadow minus the cost incurred by one of the neighbours.

The net benefit from the strategy (not drain, not drain) is the benefit from a swampy meadow for each neighbour.