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A community of ten farmers considers building a shared irrigation system at a total cost of $1,000. If built, every farmer, including those who do not contribute, will see their crop value increase by $500. The project is not undertaken because no single farmer is willing to pay the full cost, and not enough volunteer to contribute. Which statement best analyzes the core economic reason for this outcome?
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Irrigation Project Incentives
A community of ten farmers considers building a shared irrigation system at a total cost of $1,000. If built, every farmer, including those who do not contribute, will see their crop value increase by $500. The project is not undertaken because no single farmer is willing to pay the full cost, and not enough volunteer to contribute. Which statement best analyzes the core economic reason for this outcome?
Evaluating a Solution to the Free-Rider Problem
The Free-Rider Dilemma in a Community Project
A community of 20 farmers is considering building a shared irrigation ditch. The total cost to build the ditch is $10,000. If built, the ditch will increase the crop yield for each of the 20 farmers, providing an individual benefit of $800 to every farmer, regardless of whether they contributed to the cost. Based on the incentives presented, what is the most likely outcome?
In a scenario where a community irrigation project offers a total benefit to all farmers that is significantly greater than its total cost, it is economically rational for each individual farmer to contribute their share, ensuring the project's completion.
A group of farmers is considering building a shared irrigation system. The project would benefit everyone, but requires contributions to be built. Match each described situation or action with the economic principle it best illustrates.
A community of 50 farmers is considering building a shared irrigation system. The total cost of the project is $20,000. If built, the system will provide a benefit equivalent to $600 to each farmer, regardless of whether they contributed to the cost. This situation often results in the project not being undertaken because individuals are incentivized to wait for others to pay. Which of the following modifications to this scenario would be MOST effective at resolving this issue and increasing the likelihood of the project's completion?
Designing a System to Overcome the Free-Rider Problem
When a community irrigation project benefits all farmers regardless of who pays for it, the incentive for an individual farmer to not contribute and still enjoy the benefits is an example of the ____ problem.
Mitigating Free-Riding with Social Preferences and Norms
Equilibrium of the Irrigation Game