436 Problem Set 1 Answers SU18.pdf

When the anglers have the right to prevent any

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allocation of rights. When the anglers have the right to prevent any damages, the dollar value of marginal damages is equal to their marginal willingness to accept (MWTA) whereas when the pulp mill has the right to discharge, the dollar value of marginal damages is equal to the anglers’ willingness to pay (MWTP). For a normal good, MWTA > MWTP, so the MD curve would be steeper and intersect the MB curve at a level of pollution less than in part B. (The MB curve might also be different (lower), decreasing the efficient quantity further.) 2. Would the anglers be better or worse off than in part B? Why? 3. Would the pulp mill be better or worse off than in part B? Why?
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