A factory pollutes a lake which is also used by twenty vacation resorts. It would cost the factory $1,000,000 a year to prevent the pollution. Each resort faces the following alternatives (remember that there are twenty resorts):

A: Operate as a swimming resort on an unpolluted lake, making $100,000/year profit.

B: Operate as a swimming resort on a polluted lake, making $40,000/year profit.

C: Operate as a hunting lodge, making $60,000/year profit, whether or not the lake is polluted

 Suppose the resorts have an injunction against the factory polluting. (The factory can only pollute if it gets permission from the resorts).

If the factory and the resorts can bargain with zero transaction costs, describe the bargain that will occur (if any). To answer this, provide the willingness to pay (WTP) and willingness to accept (WTA) for the possible transaction.

Answer rating: 100% (QA)

In a situation where the factory and resorts can bargain with zero transaction costs an efficient ba... View the full answer