Consider the problem described on Twitter of the babbling brook turned into a raging torrent by upstream development. Suppose there are 30 affected downstream homeowners with an aggregate Marginal Damage curve measured in thousands of dollars, as a function of the height/depth of the water as measured at a designated point in feet, of MD=50F-20. Upstream developers could build detention ponds of various sizes to reduce the height of the stream, and it would cost them according the following MAC function: MAC=100-10F. Provide a graph or graphs to illustrate your analysis/answers to the following questions.
Assuming that it is well understood by all that the upstream developers have no existing responsibility to restrict the flow of the stream, what stream level would you expect to observe in the absence of any negotiations between the homeowners and the developers?
Assuming that the downstream homeowners are able to act in a coordinated and cooperative fashion to bargain with the upstream developers, and that it is well understood by all that the upstream developers have no existing responsibility to restrict the flow of the stream, what would be the equilibrium flow of the stream?
What is the most that the homeowners would pay to achieve the level in part b) as opposed to that in part a)? What is the minimum that the developers would accept?
What is the efficient stream height?