Question

Consider the voluntary contribution to building a fence game discussed in class. Assume that v1 = v2=100 and C=150, and select all that apply.

a. Each player donating 100 is a pure strategy Nash equilibrium in the game.
b. Contributing more than her own valuation is a strictly dominated strategy for each player.
c. It is efficient to build the fence.
d. There are Nash equilibria in which the fence is not built.

Answer 1

Correct Answer is Option c

It is efficient to build the fence.

(The net profit is 100 to each for an entire of 200 and the cost is 150, consequently it is efficient. For example both contribute 75, and their evaluation is 100 so both are better off with the barrier built)

a) and b) are incorrect as disbursing more than the own evaluation is not a firmly conquered strategy and each player giving 100 will be corresponding to a total of 200 and it is not a Nash equilibrium as both can reduction what they pay and be better off.

d) There are Nash equilibria in which the fence is not built. (Assume one is paying 0, then the cost to be reserved up by the other one will be 150 and the evaluation is 100, so both paying 0 will be a Nash equilibria as neither have any inducement to deviate and pay alone).