A developer owns a piece of beachfront land that he intends to develop for residential use. The private returns to the developer are as follows:
Suppose that three nearby residents would sustain damages from beach erosion if the land is developed. Their damages would be as follows:
(a) Is it efficient for the land to be developed?
(b) Suppose that the developer has property rule protection of his right to develop. If bargaining costs between the developer and the residents are zero, describe the likely outcome.
(c) How does your answer to (b) change if it costs the three residents a total of $10,000 to organize and act collectively.
(d) Explain how the government can use its regulatory powers to overcome the problem of high bargaining costs.
(e) What amount of compensation should the developer receive if he is prohibited from developing the land and it is found to be a taking?