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Mairoon Mairoon
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6 years ago
Two neighboring farmers must each decide whether to contribute to a fence that separates their properties. The fence costs a total of $20. Both farmers currently have a profit of $30 each. With a fence to keep each farmer's animals from wandering onto the other's property, both farmers would experience a $15 rise in profits. Draw the payoff matrix and discuss the possible outcomes.
Textbook 
Microeconomics

Microeconomics


Edition: 6th
Author:
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#1
6 years ago
See the above figure. This is a prisoners' dilemma. The dominant strategy for each is to not contribute—to be a free rider. Yet, both farmers are better off contributing. The dilemma can resolved through compulsion—for example a tax—or, since there are only two of them, social agreement. Cooperation and trust are required to get the fence built. Good fences make good neighbors, and good neighbors make good fences.
Mairoon Author
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#2
5 years ago
Great answer, great website
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