In the town of Torrelodones, each of the N 2 inhabitants has $100.They are told that they can all voluntarily contribute to a fund that will be evenly divided among all residents.If $F are contributed to the fund, the local K-Mart will match the private contributions so that the total amount to be divided is $2F.That is, each resident will get back a payment of $2F/N when the fund is divided.If the people in town care only about their own net incomes, in Nash equilibrium, how much will each person contribute to the fund?
A)$0
B)$10
C)$20
D)$50
E)$100

Question

In the town of Torrelodones, each of the N > 2 inhabitants has $100.They are told that they can all voluntarily contribute to a fund that will be evenly divided among all residents.If $F are contributed to the fund, the local K-Mart will match the private contributions so that the total amount to be divided is $2F.That is, each resident will get back a payment of $2F/N when the fund is divided.If the people in town care only about their own net incomes, in Nash equilibrium, how much will each person contribute to the fund?
A)$0
B)$10
C)$20
D)$50
E)$100

Quizplus · Accepted Answer

In a Nash equilibrium, each person contributes $0 because any individual contribution would result in a personal net loss. Contributing $X would yield a return of less than $X since the total contribution is doubled and then divided among all N inhabitants, meaning the contributor cannot recover their full contribution individually.

In the Town of Torrelodones, Each of the N >