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A neighbourhood plans a publicly accessible streetlight that benefits nearby residents whether or not they voluntarily contribute money. Why might voluntary funding be insufficient?

Answer and explanation

Correct answer: Some residents may benefit without contributing, reducing the incentive to fund the service voluntarily

Public street lighting is generally difficult to restrict to individual contributors, and one person's benefit does not usually prevent others from benefiting. This can create a free-rider problem in voluntary funding.

Related tags

Public GoodsFree Rider ProblemStreet LightingCollective Financing

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