1. Factory does not insta scrubber. -armer uses south field croc Damage (S= 120 Farmer cost ($=0 Factory Cost($=0 Social cost =120 2. -actor does not install scrubber Farmer rents west field Crop Damage (S = 50 Farmer cost ($=20 Factory Cost$=C SocIal cost =/ 3.Factory installs scrubber, Farmer uses south field Crop Damage ($) = 35 Farmer cost ($=0 Factor Cost ($=40 Social cos 4.Factory installs scrubber, Farmer rents west field Crop Damage ($=0 Farmer cost (S\=20 Factor Cost $=40 Social cost = 60 Questions: 1.Suppose that the factory has the right to pollute and is under no legal obligation to install the scrubber. What is the farmer’s willingness to pay to induce the factory to install the scrubber? Why? 2.Suppose that the factory has the right to pollute and is under no legal obligation to install the scrubber. What is the factory’s willingness to accept in order to install the scrubber to abate its pollution? Why? 3.Under the property rule where the factory has the right to pollute, consider the farmer's willingness to pay and the factory's willingness to accept in Questions 6 and 7. Assume that there are no transaction costs for negotiation. Will the parties negotiate and reach an agreement for factory to install the scrubber? Explain why or why not. Which action each party will take and is the socially efficient outcome?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

1. Factory does not insta scrubber. -armer uses south field croc Damage (S= 120 Farmer cost ($=0 Factory Cost($=0 Social cost =120 2. -actor does not install scrubber Farmer rents west field Crop Damage (S = 50 Farmer cost ($=20 Factory Cost$=C SocIal cost =/ 3.Factory installs scrubber, Farmer uses south field Crop Damage ($) = 35 Farmer cost ($=0 Factor Cost ($=40 Social cos 4.Factory installs scrubber, Farmer rents west field Crop Damage ($=0 Farmer cost (S\=20 Factor Cost $=40 Social cost = 60 Questions: 1.Suppose that the factory has the right to pollute and is under no legal obligation to install the scrubber. What is the farmer’s willingness to pay to induce the factory to install the scrubber? Why? 2.Suppose that the factory has the right to pollute and is under no legal obligation to install the scrubber. What is the factory’s willingness to accept in order to install the scrubber to abate its pollution? Why? 3.Under the property rule where the factory has the right to pollute, consider the farmer's willingness to pay and the factory's willingness to accept in Questions 6 and 7. Assume that there are no transaction costs for negotiation. Will the parties negotiate and reach an agreement for factory to install the scrubber? Explain why or why not. Which action each party will take and is the socially efficient outcome?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Property Rights, Bargaining And The Coase Theorem

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions