. Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 – however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 – however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. If both states clean the lake, the payoffs will beA. Wisconsin gains 100, Illinois gains 200B. Wisconsin gains 200, Illinois gains 300C. Wisconsin gains 200, Illinois loses 100D. Wisconsin gains 100, Illinois loses 100

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Asked Jul 26, 2019
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. Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 – however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 – however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. If both states clean the lake, the payoffs will be

A. Wisconsin gains 100, Illinois gains 200
B. Wisconsin gains 200, Illinois gains 300
C. Wisconsin gains 200, Illinois loses 100
D. Wisconsin gains 100, Illinois loses 100

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Expert Answer

Step 1

If Wisconsin spends 1,200 to clean the lake, then the Wisconsin receives benefit of 1,100 and Illinois receives 400.

If Illinois spends 700 to clean the lake, then Wisconsin receive benefit of 300 and Illinois receives 600.

In this case, the total benefit for Wisconsin is 1,400(1,100+300) and for Illinois is 1,000(400+600).

Step 2

Total gain for Wisconsin and Illinois...

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Total gainWiseomin = Total benfit- Spending -1,400-1,200 =200 Thus, the value of Wisconsin gain is 200 Total gain Tineia Total benfit- Spending =1,000 700 =300 Thus, the value of Illinois gain is 300

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