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Equilibrium of the Irrigation Game
In a scenario like a shared irrigation project where contributions are voluntary but benefits are shared by all, the dominant strategy for each individual farmer is not to contribute. This leads to a market equilibrium where the project is underfunded or not built at all, even if the collective benefit outweighs the cost. This outcome occurs because each farmer, acting in their own self-interest, hopes to free-ride on the contributions of others. This equilibrium can only be overcome if factors like social preferences or established community norms motivate cooperation.
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Economics
Economy
Introduction to Microeconomics Course
CORE Econ
Social Science
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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
Learn After
Community Project Funding Dilemma
In a one-time strategic interaction where each participant can choose to pay a personal cost to create a larger collective benefit for the entire group, the most predictable outcome is that the collective benefit will be maximized because each rational individual understands that cooperation is best for the group as a whole.
A group of ten independent farmers share a common water source. They are considering a project to build a new dam that would cost each farmer $1,000 if they all contribute. If built, the dam would provide a benefit equivalent to $5,000 for each farmer, regardless of who contributed. Contributions are voluntary and anonymous. Assuming each farmer acts solely to maximize their own individual outcome, what is the most likely equilibrium?
The Paradox of Collective Action
Individual Rationality vs. Collective Outcome
In a scenario where a group of individuals can voluntarily contribute to a project that benefits everyone equally, regardless of their contribution, match each concept to its correct description within the context of this strategic interaction.
A group of farmers is considering voluntarily contributing to a shared irrigation system. The total benefit to the group if the system is built is much larger than the total cost. Arrange the following statements to describe the logical progression of reasoning that leads to the likely equilibrium outcome, assuming each farmer acts in their own rational self-interest.
When individual farmers in a shared irrigation project act in their own rational self-interest, the resulting equilibrium is one where the project is underfunded because each farmer has an incentive to __________, leading to a collective outcome that is worse for everyone than if they had all cooperated.
A group of independent farmers is considering voluntarily funding a shared irrigation system. The project will only be built if enough contributions are made. While the total benefit to the community far exceeds the total cost, each farmer knows they will receive the full benefit of the system if it's built, regardless of whether they personally contribute. Based on the principles of strategic interaction, which of the following interventions is most likely to overcome the tendency for the project to be underfunded?
Evaluating a Proposed Solution to the Underfunding Dilemma
The Paradox of Collective Action