cenario 2: Individual Preference and Allocating Public Goods The residents of a gated community in Beverly Hills are trying to come to a decision on the number of security officers they should hire to guard their small neighborhood every night. Due to the size of their neighborhood, all families would benefit from having security officers even if they preferred to not pay for them. The security firm the families reached out to quoted prices for each number of security officers, with a discounted applied for additional officers. Hiring 1 officer would cost $1,000 per night, 2 officers would cost $1,700 per night, and 3 officers would cost $2,100 per night. The residents of the community have agreed to split the cost of hiring the officer evenly among all the families. Each family’s willingness-to-pay for each number officers is provided below: Family 1 officer 2 Officers 3 Officers Stark $0 $200 $300 Wayne $500 $1,000 $1,500 Parker $400 $575 $650 Given each families willingness-to-pay and the cost at each number of security officers, the community has agreed to hire 2 officers. Being a friendly economist in an adjoining neighborhood the families have asked you to weigh in with your opinion. What would you recommend the families in this community do to maximize the community benefit? Guiding Questions: Does the current decision meet the criteria for allocating public goods? Do any other decisions meet these criteria? How would each family feel about their share of the cost for each number of officers? Is their current decision Kaldor-Hicks Efficient? Are any other decision? Could you design a different payment system for their decision?
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cenario 2: Individual Preference and Allocating Public Goods
The residents of a gated community in Beverly Hills are trying to come to a decision on the number of security officers they should hire to guard their small neighborhood every night. Due to the size of their neighborhood, all families would benefit from having security officers even if they preferred to not pay for them. The security firm the families reached out to quoted prices for each number of security officers, with a discounted applied for additional officers. Hiring 1 officer would cost $1,000 per night, 2 officers would cost $1,700 per night, and 3 officers would cost $2,100 per night. The residents of the community have agreed to split the cost of hiring the officer evenly among all the families. Each family’s willingness-to-pay for each number officers is provided below:
|
Family |
1 officer |
2 Officers |
3 Officers |
|
Stark |
$0 |
$200 |
$300 |
|
Wayne |
$500 |
$1,000 |
$1,500 |
|
Parker |
$400 |
$575 |
$650 |
Given each families willingness-to-pay and the cost at each number of security officers, the community has agreed to hire 2 officers. Being a friendly economist in an adjoining neighborhood the families have asked you to weigh in with your opinion. What would you recommend the families in this community do to maximize the community benefit?
Guiding Questions:
Does the current decision meet the criteria for allocating public goods? Do any other decisions meet these criteria? How would each family feel about their share of the cost for each number of officers? Is their current decision Kaldor-Hicks Efficient? Are any other decision? Could you design a different payment system for their decision?
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