Suppose three neighbors must vote on installation of a traffic light that costs $210. All three
will share the cost of the light – that is, each person will contribute $70 to the installation.
Leona values the light at $50; Lionel values the light at $50; and Theo, who drives the most,
values the light at $200.
a) Explain why the traffic light is a public good.
b) Is it efficient for the traffic light to be installed? Why or why not?
c) Suppose a majority rule vote is held to determine whether the light should be installed.
Will the light be installed? Explain any differences between this result and your
answer in part (b).
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a) The traffic light is considered a public good because it is non-excludable and non-rivalrous. Non-excludability means that once the light is installed, it is available for use by all members of the community, and it would be difficult or impractical to exclude any specific individual from benefiting. Non-rivalry means that one person's use of the traffic light does not diminish or restrict its use by others.
b) Whether it is efficient for the traffic light to be installed depends on how the value of the light is compared to its cost. In this case, the total value of the light as perceived by Leona, Lionel, and Theo is $300 ($50 + $50 + $200). The cost of installation is $210, which means the total value exceeds the cost. Therefore, it is efficient for the traffic light to be installed.
c) If a majority rule vote is held, the light may or may not be installed, depending on the voting preferences of the neighbors. In this case, since there are three neighbors, the majority would consist of at least two of them.
If Leona and Lionel vote against the installation, the light would not be installed, even though the total value of the light exceeds the cost. This is because, in majority rule, the decision is determined solely based on the preferences of the majority.
This differs from the answer in part (b) because part (b) looked at the overall efficiency based on the total value and cost. In part (c), the decision is made based on the preferences of the majority, which may not necessarily align with the overall efficiency.