Handout for Public Choice
A Tale of Three Bridges
Three cities (of three consumers each) are considering building a bridge. The table below shows the marginal benefit of the bridge to each consumer in each city. The bridge will cost $1,500 to build in each city. If the government builds the bridge it may finance the bridge by taxing all citizens an equal amount ($500) or by charging a constant toll or by charging different tolls to different citizens. There will be at most one bridge built in each city. If the bridge is privately built, the supplier will, by definition, be a monopolist. The bridge will cost the monopolist $1,500 to build. The monopolist may charge either a single toll or different tolls to different consumers. All five possibilities are shown in the decision table. For each bridge decide whether a majority-rule government would build the bridge with each of the three financing possibilities and what toll it would charge if it financed the bridge by tolls. Next, decide whether a single price monopolist would build the bridge and what price would be charged. Finally, decide whether a price discriminating monopolist would build the bridge and what price would be charged. All of the information in the tables is known to everyone.
Decisions (Build or not, what toll?)
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