A developer owns a piece of beachfront property 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 were developed. Their damages would be as follows:
- Resident 1: $20,000
- Resident 2: $15,000
- Resident 3: $10,000
a. Is it efficient for the land to be developed? (Enter "Yes" or "No")
b. Suppose the developer's right to develop his beachfront property is protected by a property rule. If bargaining costs between the developer and the three residents are zero, will the land be developed? (Enter "Yes" or "No")
c. Continue to suppose the developer's right to develop his beachfront property is protected by a property rule. However, assume now that it costs the three residents a total of $10,000 to organize and act collectively. Will the land be developed? (Enter "Yes" or "No")
d. Suppose now that the local government has enacted a regulation that prohibits the development of the beachfront property. What level of compensation should the developer receive if the regulation is found to constitute a regulatory taking? Do not consider the efficiency of the regulation.