Sara and Reshmi are trying to Ogure out what to do with a plot of land that over

Question

Sara and Reshmi are trying to Ogure out what to do with a plot of land that overlaps their property lines. Currently they both use the space for various activities, but Reshmi has decided she would like to plant both a vegetable and aower garden to cut costs on grocery bills and to beautify the area. Sara is opposed to this idea as the garden will attract bees and bugs which she is allergic to. Reshmi values the garden at $1500 and Sara estimates spending $1800 on doctor bills and pest control if the garden is planted.

(a) If Reshmi had control of the property rights for this land, would the garden be built? Explain.

(b) Is Sara owned the property rights would the garden be built? Explain.

(c) Say that Reshmiis valuation of benefits increased to $2100 and Sara owned the property rights. What range of prices would be offered, and by whom, to reach the efficent market outcome?

Explanation / Answer

(a) If Reshmi had control of the property rights, she would build the garden. The reason is that her valuation of the garden is $1,500 and that helps her cut on grocery bills along with beautifying the area. So her benefits are higher.

(b) If Sara owned the property rights, she would not build the garden. Even if she built the garden and it povides a benefit of $1,500, Sara would need to spend $1,800 on doctor bills. Her net benefit is on the negative and hence building a garden does not provide her with additional incentive.

(c) If the valuation of benefits were $2,100 for Reshmi, she would try to convince Sara to build the garden. Reshmi will offer Sara $1,800 that would cover her doctor bills or pest control. Even after that cost is assumed, Reshmi has a net benefit of $300.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.