3. Voluntary contributions toward a public good
Juanita and Neha are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $300 to the water
fountain or to keep that $300 for a weekend getaway.
Since a water fountain is a public good, both Juanita and Neha will benefit from any contributions made by the other person. Specifically, every dollar
that either one of them contributes will bring each of them $0.90 of benefit. For example, if both Juanita and Neha choose to contribute, then a total
of $600 would be contributed to the water fountain. So, Juanita and Neha would each receive $540 of benefit from the water fountain, and their
combined benefit would be $1,080. This is shown in the upper left cell of the first table.
Since a weekend getaway is a private good, if Juanita chooses to spend $300 on a weekend getaway, Juanita would get $300 of benefit from the
weekend getaway and Neha wouldn't receive any benefit from Juanita's choice. If Juanita still spends $300 on a weekend getaway and Neha chooses
to contribute $300 to the water fountain, Juanita would still receive the $270 of benefit from Neha's generosity. In other words, if Juanita decides to
keep the $300 for a weekend getaway and Neha decides to contribute the $300 to the public project, then Juanita would receive a total benefit of
$300 + $270 = $570, Neha would receive a total benefit of $270, and their combined benefit would be $840. This is shown in the lower left cell of the
first table.
Complete the following table, which shows the combined benefits to Juanita and Neha as previously described.
Neha
