The Pacific Pulp Company plans to clearcut 100 acres of land to produce paper pulp which would earn the firm $50,000 in profits.One hundred nearby homeowners realize that this would reduce the value of each of their properties by $1,000.These 100 homeowners

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The homeowners face a logistical problem of organizing themselves to collectively offer a side payment to Pacific Pulp to prevent the clearcutting, which would otherwise reduce the value of their properties. This is a classic example of a collective action problem, where the benefits of organizing (preventing the loss in property value) are clear, but the costs and challenges of organizing a large group (100 homeowners) to agree on and contribute to a side payment can be significant.

The Pacific Pulp Company Plans to Clearcut 100 Acres of Land