Question: Let's consider a littering (or pollution) externality. Albert and Berta both have Cobb-Douglas utility u A =x A 1 x A 2 -2x B 2

Let's consider a littering (or pollution) externality. Albert and Berta both have Cobb-Douglas utility u_A=x_A¹x_A²-2x_B² and u_B=x_B¹x_B²-x_A². Good 2 is candy, where after each candy bar they absent-mindedly throw the rapper away in the middle of the beautiful street. Berta always forgets and so has a large externality on Albert, while Albert sometimes remembers so has a small externality on Berta. This effect is captured in their utility functions. Now find the set of all Pareto efficient points (the contract curve).

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