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Imagine the very relevant situation in developing countries where people can either decide to be law-abiding citizens or to engage in illegal activities. They would choose to be law-abiding citizens if there were a significant chance that they would be caught in the commission of a crime, but would engage in illegal activities if there were a low chance of being apprehended. The police have limited resources to fight crime, so the probability of being caught depends on the number of people engaged in illegal activities. If few people break the law, then the probability of being caught is high and it is preferable to be honest, but if many break the law, the probability is lower and there are more incentives to engage in illegal activities. How many potential equilibria could we arrive at in this example? Please describe the equilibria. Is this a coordination problem or a corporation problem? What is the main difference between the coordination problem and the corporation problem?

Imagine the very relevant situation in developing countries where people can either decide to be law-abiding citizens or to engage in illegal activities. They would choose to be law-abiding citizens if there were a significant chance that they would be caught in the commission of a crime, but would engage in illegal activities if there were a low chance of being apprehended. The police have limited resources to fight crime, so the probability of being caught depends on the number of people engaged in illegal activities. If few people break the law, then the probability of being caught is high and it is preferable to be honest, but if many break the law, the probability is lower and there are more incentives to engage in illegal activities. How many potential equilibria could we arrive at in this example? Please describe the equilibria. Is this a coordination problem or a corporation problem? What is the main difference between the coordination problem and the corporation problem?

Calculus For The Life Sciences
Calculus For The Life Sciences
2nd Edition
ISBN:9780321964038
Author:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Chapter12: Probability
Section12.3: Conditional Probability; Independent Events; Bayes' Theorem
Problem 39E: The following problem submitted by Daniel Hahn of Blairstown, Iowa, appeared in the Ask Marilyn...
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Imagine the very relevant situation in developing countries where people can either decide to be law-abiding citizens or to engage in illegal activities. They would choose to be law-abiding citizens if there were a significant chance that they would be caught in the commission of a crime, but would engage in illegal activities if there were a low chance of being apprehended. The police have limited resources to fight crime, so the probability of being caught depends on the number of people engaged in illegal activities. If few people break the law, then the probability of being caught is high and it is preferable to be honest, but if many break the law, the probability is lower and there are more incentives to engage in illegal activities. How many potential equilibria could we arrive at in this example? Please describe the equilibria. Is this a coordination problem or a corporation problem? What is the main difference between the coordination problem and the corporation problem?
Transcribed Image Text:Imagine the very relevant situation in developing countries where people can either decide to be law-abiding citizens or to engage in illegal activities. They would choose to be law-abiding citizens if there were a significant chance that they would be caught in the commission of a crime, but would engage in illegal activities if there were a low chance of being apprehended. The police have limited resources to fight crime, so the probability of being caught depends on the number of people engaged in illegal activities. If few people break the law, then the probability of being caught is high and it is preferable to be honest, but if many break the law, the probability is lower and there are more incentives to engage in illegal activities. How many potential equilibria could we arrive at in this example? Please describe the equilibria. Is this a coordination problem or a corporation problem? What is the main difference between the coordination problem and the corporation problem?
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