Economics 3366A/B Study Guide - Quiz Guide: Bargaining Problem
9 Feb 2016
School
Department
Course
Professor
Document Summary
A factory produces smoke that causes damage of to the laundry of a local resident. The smoke damage can be eliminated in one of two ways: the factory can install a chimney at cost or the resident can purchase an electric dryer, and use this to dry his laundry, at cost . Consider the following two legal rules: (a) the factory has an unlimited right to pollute factory"s right. (b) if the factory pollutes, it must pay the resident three times the resident"s damages. Suppose first that it is prohibitively expensive for the factory owner and the resident to negotiate. Suppose instead that the factory owner and resident can bargain costlessly. In particular, the outcome from bargaining is given by the nash bargaining solution. Note: apply the reasonable bargaining solution or nash bargaining solution where applicable. Please answer the questions below after reading spur industries, inc. v. del e. webb.
