Task:
Question:
a) What is the principle of minimum differentiation and how does it relate to the free-rider problem we have in society?
(b) Under what conditions will the political process provide an inefficient amount of a public good?
(c) Suppose three neighbors must vote on the installation of a traffic light that costs $210. The cost of the light will shared by all three. Voter A values the light at $50; voter B values the light at $50; and voter C (who drives the most) values the light at $200. If the voting rule is that the majority wins, does the light get purchased? Is it efficient to purchase the light? Explain.