1
Economics 1200
Spring 2012
Homework # 3
Write your answers to the following questions on separate sheets of paper. Your answers are due
in class on
Thursday, February 23, 2012
.
No late homeworks are accepted.
1.
A public good is one for which those who do not pay for the good enjoy the same
benefits as those who do pay for it.
Think of publicly supported television or radio; paid
members cannot exclude nonmember “freeriders” from watching or listening. With this
in mind, consider the following
three
person game involving contributions to a public
good.
Call the three players: Larry, Curly and Moe.
Each player has two action choices: contribute or not contribute one unit to the public
good. Each player who chooses to contribute pays a cost of 1.5 units.
If a player contributes, his payoff is the total number of units contributed by all
players, himself included (so a maximum of 3 units), less the cost of making his own
contribution, 1.5 units.
If a player does not contribute, his payoff is the total number of units contributed by
all other players.
a)
Write this threeplayer game down in normal (strategic) form.
b)
Find the Nash equilibrium of this game. Is this equilibrium the most efficient
outcome? Explain why or why not.
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 Fall '08
 Staff
 Game Theory, Public Good, Nash equilibria, Blaise Pascal, Cooperate Defect

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