Problem
Suppose a factory located next to a river discharges pollution that causes $2 million worth of environmental damage to the residents downstream. The factory could completely eliminate the pollution by treating the water on location at a cost of $1.6 million. Alternatively, the residents could construct a water purification plant just upstream of their town, at a cost of $0.8 million, which would not completely eliminate the environmental damage to them but reduce it to $0.5 million. Under current law, the factory must compensate the town for any environmental damage the factory causes. Bargaining between the factory owner and the town is costless. What would the Coase Theorem imply about the outcome of bargaining between the town and the factory owner?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.