1. Bloomington Mayor-elect Hamilton is indifferent about whether to keep a $100,000property tax revenue surplus or use it to create a tax abatement district on 2nd Street (pastRoute 37) in order to attract new business to Bloomington. If the new businesses thatlocate there are successful, $700,000 in additional tax revenues will be collected by thecity. If those new businesses fail, the city coffers will lose the entire $100,000 surplus andno new taxes will be collected. Prior to making his decision, Hamilton determines that taxabatement districts are successful 15% of the time. a. What is Mayor-elect Hamilton’sutility of $100,000?2. Mayor-elect Hamilton is also indifferent between keeping the $100,000 surplus andgiving bonuses to city employees. Hamilton believes that bonuses paid to public sectoremployees result in a 20% increase to their productivity (which would save the city anadditional $250,000 after the bonuses are paid) when they are effective. Studies onbonuses given to employees of similar sized cities show that the hoped for productivitygains occur 60% of the time. In other words the bonuses paid are only effective 60% ofthe time. NOTE: You need to know the answer to Question 1 in order to answer Questiona. What is Mayor-elect Hamilton’s utility of $250,000?b. Graph Mayor-elect Hamilton’s utility curve. c. What is Mayor-elect Hamilton’s attitude toward risk?
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