Problem
Suppose a law is passed that prohibits farmers from using certain chemical fertilizers because they contaminate ground water. The expected reduction in illness to water users is $10 million, but the loss to farmers is $8 million.
(a) Is the law efficient according to the Pareto criterion? Is it Kaldor-Hicks efficient? Explain.
(b) Now suppose the government taxes water users and uses the revenue to fully compensate farmers for their losses. Is the law now efficient according to Pareto? Is it Kaldor-Hicks efficient? Explain.
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.