A developer owns a piece of beachfront land that she intends to developfor residential use. The private returns to the developer are as follows:Return if developed: $50,000Return if undeveloped: $10,000Suppose that three nearby residents would sustain damages from beacherosion if the land is developed. Their damages would be as follows:Resident 1: $20,000Resident 2: $15,000Resident 3: $10,000a.) Is it efficient for the land to be developed?b.) Suppose that the developer has property rule protection of herright to develop. If bargaining costs between the developer and theresidents are zero, describe the likely outcome.c.) How does your answer to part (b) change if it costs the threeresidents a total of $10,000 to organize and act collectively?d.) How can the government use its regulatory authority toovercome the problem of high bargaining costs?e.) What amount of compensation should the developer receive ifshe is prohibited from developing the land and if the development ban isconstrued to be a taking?
A developer owns a piece of beachfront land that she intends to developfor residential use. The private returns to the developer are as follows:Return if developed: $50,000Return if undeveloped: $10,000Suppose that three nearby residents would sustain damages from beacherosion if the land is developed. Their damages would be as follows:Resident 1: $20,000Resident 2: $15,000Resident 3: $10,000a.) Is it efficient for the land to be developed?b.) Suppose that the developer has property rule protection of herright to develop. If bargaining costs between the developer and theresidents are zero, describe the likely outcome.c.) How does your answer to part (b) change if it costs the threeresidents a total of $10,000 to organize and act collectively?d.) How can the government use its regulatory authority toovercome the problem of high bargaining costs?e.) What amount of compensation should the developer receive ifshe is prohibited from developing the land and if the development ban isconstrued to be a taking?
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