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13.6 A beekeeper and a farmer with an apple orchard are neighbours. This proximity is convenient for the orchard owner because the bees pollinate the apple trees: one beehive pol- linates one acre of orchard. Unfortunately, there are not enough bees next door to pollinate the whole orchard. Commercial pollination services cost $10/acre. The beekeeper has total costs TCH2 + 10H + 10 where H is the number of hives. Each hive yields $20 worth of honey. a. How many hives would the beekeeper maintain if operating independently of the farmer? What is the value of the positive externality provided by the beekeeper to the farmer? b. What is the socially efficient number of hives? c. In the absence of transaction costs, what outcome do you expect will arise from bargaining between the beekeeper and the farmer? d. How high would total transaction costs need to be to erase all gains from bargaining?

13.6 A beekeeper and a farmer with an apple orchard are neighbours. This proximity is convenient for the orchard owner because the bees pollinate the apple trees: one beehive pol- linates one acre of orchard. Unfortunately, there are not enough bees next door to pollinate the whole orchard. Commercial pollination services cost $10/acre. The beekeeper has total costs TCH2 + 10H + 10 where H is the number of hives. Each hive yields $20 worth of honey. a. How many hives would the beekeeper maintain if operating independently of the farmer? What is the value of the positive externality provided by the beekeeper to the farmer? b. What is the socially efficient number of hives? c. In the absence of transaction costs, what outcome do you expect will arise from bargaining between the beekeeper and the farmer? d. How high would total transaction costs need to be to erase all gains from bargaining?

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 12SCQ: Consider the case of global environmental problems that spill across international borders as a...
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13.6 A beekeeper and a farmer with an apple orchard are neighbours. This proximity is convenient for the orchard owner because the bees pollinate the apple trees: one beehive pol- linates one acre of orchard. Unfortunately, there are not enough bees next door to pollinate the whole orchard. Commercial pollination services cost $10/acre. The beekeeper has total costs TCH2 + 10H + 10 where H is the number of hives. Each hive yields $20 worth of honey. a. How many hives would the beekeeper maintain if operating independently of the farmer? What is the value of the positive externality provided by the beekeeper to the farmer? b. What is the socially efficient number of hives? c. In the absence of transaction costs, what outcome do you expect will arise from bargaining between the beekeeper and the farmer? d. How high would total transaction costs need to be to erase all gains from bargaining?
Transcribed Image Text:13.6 A beekeeper and a farmer with an apple orchard are neighbours. This proximity is convenient for the orchard owner because the bees pollinate the apple trees: one beehive pol- linates one acre of orchard. Unfortunately, there are not enough bees next door to pollinate the whole orchard. Commercial pollination services cost $10/acre. The beekeeper has total costs TCH2 + 10H + 10 where H is the number of hives. Each hive yields $20 worth of honey. a. How many hives would the beekeeper maintain if operating independently of the farmer? What is the value of the positive externality provided by the beekeeper to the farmer? b. What is the socially efficient number of hives? c. In the absence of transaction costs, what outcome do you expect will arise from bargaining between the beekeeper and the farmer? d. How high would total transaction costs need to be to erase all gains from bargaining?
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