Question

Providing Public Goods: Very Small Town has an opportunity to build a park at a cost of $6000 per acre. Once built, the park is non-rival and non-excludable. Very Small Town has 3 residents (Alice, Bob, and Claire) whose total willingness to pay for parks of different sizes is summarized below.

Acres	Alice	Bob	Claire
1	$ 1800	$ 2800	$ 4000
2	$ 3500	$ 5000	$ 6500
3	$ 5000	$ 7100	$ 9000
4	$ 5500	$ 7500	$ 10000

a) What size park is socially optimal?

b) Suppose the cost of the park is evenly split between all residents.

i.What is the largest park which would receive majority approval on a yes-no vote?

ii.What’s the largest park which would receive unanimous support?

c) Suppose Bob had Alice’s preferences. How would your answers change to parts a and b?

d) Suppose the cost of the park is evenly split between (only) residents that vote “yes.” Who would support a 1-acre park? (Assume the above chart is known to all residents.)

Answer 1