A paint maker and a brewer share a lake, and the brewer finds that its beer is starting to taste a bit strange and cause its drinkers to think they are conversing with Satan. If this continues, it will cost the brewer $80,000. To avoid this, the brewer could filter the lake's water ($30,000), use more powerful hops to override the effect ($50,000), or use bottled water from Fiji ($90,000). Alternatively, the paint maker could clean its waste before dumping it in the late ($75,000), change the ingredients in its paint ($20,000), burn its waste ($45,000), or shut down (lost profits of $90,000).
a. If both brewer and paint maker were parts of the same firm, what would be done? Is this a socially efficient outcome?
b. If the law favored the brewer, and the paint maker's lawyer would only charge $50 to work out a deal, what would be done? Is this a socially efficient outcome?
c. If the law favored the paint maker, and the brewer's lawyer would only charge $50 to work out a deal, what would be done? Is this a socially efficient outcome?
d. If the law favored the brewer, and the paint maker's lawyer would charge $25,000 to work out a deal, what would be done? Is this a socially efficient outcome?
e. If the law favored the paint maker, and the brewer's lawyer would only charge $25,000, to work out a deal, what would be done? Is this a socially efficient outcome?