A paper mill discharges gunk that causes damage

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A paper mill discharges gunk that causes damage of $200 to the fishermen's business. The pollution damage can be eliminated in one of two ways: the mill can install a filter at cost $300 or fishermen can install a water treatment plant at cost $100.
a) Identify the efficient outcome.
Assume the fishermen have property right to no Pollution (and the property right is protected
by compensatory damages)
b) Construct a game matrix to illustrate the interaction between the factory and the resident.
c) Suppose first that it is prohibitively expensive for the mill and fishermen to negotiate. What will the outcomes?
d) Suppose instead that the mill and fishermen can bargain costlessly. What will the outcomes be? Note: Apply the Nash bargaining solution where any gain from a bargaining is shared evenly between parties.

Reference no: EM13338111

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