A paper recycling facility is proposed for a town. Because of the bleaches and other chemicals used in paper recycling, there are concerns about the air and water pollution from the plant. A team of economists has studied the facility. The total benefits associated with the facility (including the benefits of not using virgin forests for paper) are estimated to be $10 million; the total costs (including environmental costs) are estimated to be $5 million. Let's consider different scenarios for examining whether the plant is likely to be built.
(a) Is it efficient to build this facility? Why or why not?
(b) Suppose that the plant is located inside the town, which expects to bear all the benefits and costs (which are evenly distributed across the population). If there were a vote on whether to build the plant, would you expect it to be built? Why or why not?
(c) Suppose that the plant is located inside the town, which expects to bear all the benefits and costs. Now, the benefits all go to a small group in the town, while the costs are spread among the majority. If there were a vote on whether to build the plant, would you expect it to be built? Why or why not?
(d) Suppose that the plant is located inside the town, which expects to bear all the benefits and costs. The benefits all go to a small group in the town, while the costs are spread among the majority. Now, one city manager decides on the project. Under what conditions might the plant be built? Under what conditions might the plant not be built?
(e) Suppose that the plant is located just outside the town. While the people in the town will disproportionately bear the costs of the facility, those who will decide whether it should be built are in the rural area outside of town. Would you expect the plant to be built? Why or why not?