Dealing with negative externalities. Two neighbors in a rural community were fed up with the town's landfill policies and decided to purchase land together to use as their own landfill. However, the two neighbors did not anticipate the consequences of their purchase and quickly found that their new landfill smelled. Each neighbor has 10 bags of trash. Dumping on their own land is cheap, but the two neighbors have to endure an increased bad smell; however, dumping at the town's landfill incurs a cost of $3 per bag. Neighbor 1 lives downwind of the new landfill and endures the brunt of the smell. Her utility is u₁(b1, b2)=-3(10-b₁)-(b₁+b2)² - (b₁ + b₂), while the upwind neighbor's utility is u2(b1, b2)=-3(10-b2) - (b1+b2)², where b; is the number of bags each neighbor dumps at her own landfill. Note that the utilities are negative, as both actions are positive numbers (i.e., b1, b2 > 0). (a) How much will each neighbor dump at her new landfill? (b) If the neighbors were to coordinate, how much would they dump at their new landfill?

Dealing with negative externalities. Two neighbors in a rural community were fed up with the town's landfill policies and decided to purchase land together to use as their own landfill. However, the two neighbors did not anticipate the consequences of their purchase and quickly found that their new landfill smelled. Each neighbor has 10 bags of trash. Dumping on their own land is cheap, but the two neighbors have to endure an increased bad smell; however, dumping at the town's landfill incurs a cost of $3 per bag. Neighbor 1 lives downwind of the new landfill and endures the brunt of the smell. Her utility is u₁(b1, b2)=-3(10-b₁)-(b₁+b2)² - (b₁ + b₂), while the upwind neighbor's utility is u2(b1, b2)=-3(10-b2) - (b1+b2)², where b; is the number of bags each neighbor dumps at her own landfill. Note that the utilities are negative, as both actions are positive numbers (i.e., b1, b2 > 0). (a) How much will each neighbor dump at her new landfill? (b) If the neighbors were to coordinate, how much would they dump at their new landfill?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 43P: A city currently emits 15 million gallons (MG) of raw sewage into a lake that is beside the city....

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