1.Factory does not install scrubber,Farmer uses south field Crop Damage ($)= 120 Farmer cost ($)=0 Factory Cost($)=0 Social cost =120 2. Factory does not install scrubber, Farmer rents west field Crop Damage ($) = 50 Farmer cost ($)=20 Factory Cost($)=0 Social cost =70 3.Factory installs scrubber,Farmer uses south field Crop Damage ($)= 35 Farmer cost ($)=0 Factory Cost($)=40 Social cost =75 4.Factory installs scrubber,Farmer rents west field Crop Damage ($)=0 Farmer cost ($)=20 Factory Cost($)=40 Social cost = 60 A ) 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? B )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? C )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 A and B. Assume that there are no transaction costs for negotiation. a. Will the parties negotiate and reach an agreement for factory to install the scrubber? Explain why or why not. b. Which action each party will take and is the socially efficient outcome?
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1.Factory does not install scrubber,Farmer uses south field Crop Damage ($)= 120 Farmer cost ($)=0 Factory
2. Factory does not install scrubber, Farmer rents west field Crop Damage ($) = 50 Farmer cost ($)=20 Factory Cost($)=0 Social cost =70
3.Factory installs scrubber,Farmer uses south field Crop Damage ($)= 35 Farmer cost ($)=0 Factory Cost($)=40 Social cost =75
4.Factory installs scrubber,Farmer rents west field Crop Damage ($)=0 Farmer cost ($)=20 Factory Cost($)=40 Social cost = 60
A ) Suppose that the factory has the right to pollute and is under no legal obligation to install the scrubber. What is the farmer’s
B )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?
C )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 A and B. Assume that there are no transaction costs for negotiation. a. Will the parties negotiate and reach an agreement for factory to install the scrubber? Explain why or why not. b. Which action each party will take and is the socially efficient outcome?
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