2008_02_07_Notes

# 2008_02_07_Notes - Alpaca(\$ Total Revenue from Alpacas(\$ 1...

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The Tragedy of the Commons (Hardin) “No technical solutions”. Bentham’s “greatest good for the greatest number of people”. Invisible hand and population. “Tragedy of the commons” Pollution and the commons. “Mutual coercion mutually agreed upon”.

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Demonstrating the Tragedy of the Commons Imagine a village that has 6 families surrounding a common area where Alpacas can be raised at no cost. Each villager has \$1,000 and must choose whether to invest it in the local bank at an interest rate of 8% per year or buy a year-old Alpaca which costs \$1000. The price of a two-year-old Alpaca depends upon its weight. Yearly weight gain in turn depends upon the number of Alpacas that graze on the commons. The following provides the market price of two-year-old Alpacas as a function of the total number of Alpacas. Number of Alpacas Price per
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Unformatted text preview: Alpaca (\$) Total Revenue from Alpacas (\$) 1 1200 1200 2 1175 2350 3 1150 3450 4 1125 4500 5 1100 5500 6 1075 6450 Demonstrating the Tragedy of the Commons Number of Alpacas Opportunity Cost (\$) Price per Alpaca, Average Revenue (\$) Total Revenue from Alpacas (\$) Marginal Revenue 1 1,200 1,200 2 1,175 2,350 3 1,150 3,450 4 1,125 4,500 5 1,100 5,500 6 1,075 6,450 1. Suppose that each of the families makes their decision separately but sequentially (i.e., the first village chooses first, the next villager chooses second and so on), how many Alpacas will they choose to graze on the commons? 2. Under these conditions, what should the village do to maximize its collective returns to its original \$6,000. i.e., how many Alpacas should the village choose to graze on the commons? 3. Suppose you couldn’t get the villagers to agree, what would an optimal tax be?...
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## This note was uploaded on 02/19/2009 for the course AEM 4510 taught by Professor Shawhan,d. during the Spring '08 term at Cornell.

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2008_02_07_Notes - Alpaca(\$ Total Revenue from Alpacas(\$ 1...

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