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?

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 10SCQ: Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the...

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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?

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