Consider the setup from Question 2. Suppose that the government recruits additional ?N firemen and taxes Ann and Bob equally to cover the cost. Therefore, the total number of firemen is ??+??+?MA+MB+N, where ??,??MA,MB are appropriate individually-optimal contributions of ?A and ?B(i.e., the agents behave optimally, conditional on the policy), and each agent is taxed ?/2N/2. How many additional firemen should the government hire in order to guarantee that in equilibrium the total number of firemen is optimal? a. There is no such number. b. ?=320/3 c. ?=80 d. N=160/3

Consider the setup from Question 2. Suppose that the government recruits additional ?N firemen and taxes Ann and Bob equally to cover the cost. Therefore, the total number of firemen is ??+??+?MA+MB+N, where ??,??MA,MB are appropriate individually-optimal contributions of ?A and ?B(i.e., the agents behave optimally, conditional on the policy), and each agent is taxed ?/2N/2. How many additional firemen should the government hire in order to guarantee that in equilibrium the total number of firemen is optimal? a. There is no such number. b. ?=320/3 c. ?=80 d. N=160/3

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.11P

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