Externalities. A neighbor has started raising pigs creating a horrible stink that disturbs the neighbors. a....

Externalities. A neighbor has started raising pigs creating a horrible stink that disturbs the neighbors.

a. What are the conditions of an efficient resolution to this dispute?

b. If there is a law protecting my right to protection from foul smells, what can the neighbor do to keep his pigs? Can there be an efficient outcome? Would you expect this to happen?

c. If there is a law allowing bad smells (or at least no law prohibiting it), then what could I (and my other neighbors) do to get rid of the pigs (legally)? Can there be an efficient outcome? Would you expect this to happen?

Solutions

Expert Solution

a. What are the conditions of an efficient resolution to this dispute?

Answer: Pigs creating stink that disturbs the neighbor. It is form of negative externalities. Here,

1.)either owner of pigs must pay to affected parties or

herd of pigs should be reduced to reach the efficient outcomes.

b. If there is a law protecting my right to protection from foul smells, what can the neighbor do to keep his pigs? Can there be an efficient outcome? Would you expect this to happen?

Answer: Law protecting the right to have fresh air would necessarily lead to the efficient outcome. Affected party would sue owner of pigs for creating foul smell. Neighbor raising pigs would either reduce the pigs or compensate neighbor for sufferings.

Answer : since law does not prohibits bad smells. Hence, law recourse cannot be resorted to. Here, neighbors can compensate owner of pigs for restricting the number of pigs. Efficient outcome can be reached only if number of neighbor is small. If size of neighbor grows, free rider problem may restrict efficient outcome.

Rahul Sunny answered 1 year ago

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