QUESTION 1 – Efficient Allocation I own a plot of land in...

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Econ 522 – Economics of Law – Fall 2012 – Dan Quint Homework 1 – Efficiency Due 11:59 p.m. Thursday, September 20 Homework should be submitted electronically via the dropbox on MyUW – contact Nathan at [email protected] if you have any problems with electronic submission. As discussed in lecture/on the syllabus, feel free to work together on these problems, but please WRITE UP YOUR OWN ANSWERS. QUESTION 1 – Efficient Allocation I own a plot of land in northern Wisconsin, on which I vacation. My next-door neighbor wants my land as well, to expand his own house. The value of the land to me is $150,000. (That is, I would be indifferent between keeping the house, and losing the house but having $150,000.) The value of the land to my neighbor is $275,000. Which of the following are Kaldor-Hicks improvements? (i) My neighbor buys my land for $200,000 (ii) My neighbor buys my land for $275,000 (iii) My neighbor pressures the town council to force me to sell him the land for $125,000 (iv) My neighbor, while drunk, buys my land for $350,000

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