Thursday, May 03, 2007

A Colleague of mine has a water problem.

His house used to get water through a shared private pipeline which was pumped out of a well. The people served by the pump have stopped paying for electricity, the electricity has been cut off and he has no water. That is, they have a collective action problem.

John Nash has a solution. Lets say someone contributes 100 Euro (the pump is in Italy) to start the following game. People can pay their share of the cost of the electricity X. The donor has a secret date T. If by T not all water users have paid their share of the cost, each contributor gets his/her x back and an equal share of the 100 Euro. If everyone has paid, the donor takes the 100 euro back.

According to Nash, if people are greedy scum, they will all pay hoping to get part of the hundred Euro and, in any case, the value of the water is well over x. If, however, they have some decency, they will all pay because it is the right thing to do, they hope to get part of the hundred Euro and the value of the water is well over x.

Thus, so long as Nash is right, the generous donor can bring water to the thirsty for the cost of interest on 100 Euro (in countries other than Italy he/she could put it in a bank and earn interest but around here fees and such are more than the interest on 100 Euro so one's best bet is to invest in 2 50 euro banknotes).

If any reader of this blog thinks that Nash is right, either he is and the problem is solved or some well meaning or greedy Italians will take your money.

I tend to avoid making predictions but I predict that
1) no one will volunteer
2) if anyone does, he or she will be 100 Euro poorer.

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