2. A developer owns a piece of beachfront land that he intends to develop for residential use. The private returns to the developer are as follows: Return if developed $50,000

2. A developer owns a piece of beachfront land that he intends to develop for residential use. The private returns to the
developer are as follows: Return if developed $50,000
Return if undeveloped $10,000 Suppose that three nearby residents would sustain damages from beach erosion if the land is developed. Their
damages would be as follows: Resident 1: $20,000
Resident 2: $15,000
Resid-t 3: $10,000
(a) Is it efficient for the land to be developed? Eb} Suppose that the developer has property rule protection of his right to develop. If bargaining costs between the
developer and the residents are zero, describe the likely outcome. [0) How does your answer to Lb} change if it costs the three residents a total of $10,000 to organize and act
collectively. (d) Explain how the government can use its regulatory powers to overcome the problem of high bargaining costs. (e) amount of compensation should the developer receive if he is prohibited from developing the land and it
is found to be a taking?

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