Clint, Lee and Eli are the only three residents of the village of Fantasma. They are considering whether to construct a hiking trail in the mountains surrounding the village. Because congestion on the trail is unlikely, it would be nonrival. Clint values the trail at $300 per month, Lee values the trail at $100 per month, and Eli values the trail at $80 per month. The cost of building and maintaining the trail is $420 per month. If Clint proposes a tax whereby all three of them split the cost of the trail equally, then will the majority of them support this tax?

Question

Quizplus · Accepted Answer

Since the trail is nonrival, the total benefit of building it is $300 + $100 + $80 = $480. Since $480 > $420, it is socially optimal to build the trail. However, if all three of them split the cost equally, then each would pay $140, and neither Lee nor Eli would support this.

Clint, Lee and Eli Are the Only Three Residents of the Village