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Lehman owns a house near the peak overlooking the harbour, from which he enjoys a commanding sunset view.

11. Lehman owns a house near the peak overlooking the harbour, from which he enjoys a commanding sunset view. Now Normura purchases the property below Lehman's and is considering which of two houses to build: a one-story house that would leave Lehman's view intact; or a two-story design that would completely block Lehman's view.

Suppose the gain to Lehman from an unobstructed view is 120, the gain to Normura from having a one- story house is 220, and the gain to Normura from a two-story house is 300. It is assumed that negotiations between the two parties were costless and Normura has the right to build as tall as she can. What is the optimal private solution to the problem?

(a) Normura builds a one-story house by receiving $40 from Lehman. (b) Normura builds a one-story house by receiving $90 from Lehman.**

(c) Normura builds a two-story house without negotiating with Lehman. (d) Normura builds a two-story house by paying Lehman $40.

(e) Normura builds a two-story house by paying Lehman $90.

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