A paper mill discharges gunk that causes damage of $200 to the fishermen's business. The pollution damage can be eliminated in one of two ways: the mill can install a filter at the cost $300 or fishermen can install a water treatment plant at the cost $100.
1. Find out the efficient outcome. Suppose the fishermen have property right to no Pollution (and the property right is protected by compensatory damages)
2. Create a game matrix to illustrate the interaction between the factory and the resident.
3. What will the outcomes? Suppose first that it is prohibitively expensive for the mill and fishermen to negotiate.
4. Suppose instead that the mill and fishermen can bargain costlessly. What will the outcomes be?