Suppose a new recreational neighborhood park would cost $20,000, including opportunity costs, to construct and maintain. If built, the park would be a public good. For simplicity, assume the neighborhood park would be used by three families, each of whom would derive a marginal benefit equivalent to $8,000 from the park.
a. If left to the private market, would the park be built? (Hint: There would be no
Coasian bargaining or government intervention.)
b. From society’s perspective, should the park be built?
c. Describe a bargaining solution or government intervention which could lead to the park’s construction.