Suppose a local meat packing company dumps waste into a river, causing a firm located downstream that uses the water to incur costs to restore the water quality. An efficient solution to this problem might involve:
1) forcing the meat- packing company to relocate near a different river;
2) forcing the meat- packing company to buy the downstream firm;
3) permitting the downstream firm to charge the meat- packing company.

Question

Quizplus · Accepted Answer

Option 1 only involves completely relocating the meat-packing company, which may not be feasible or efficient. Option 2 only involves the meat-packing company buying the downstream firm, which may not be desirable or fair. Option 3 permits the downstream firm to charge the meat-packing company, which provides a financial incentive for the meat-packing company to reduce their waste, while also compensating the downstream firm for their costs. Therefore, options 2 and 3 are both efficient solutions to the problem.

Suppose a Local Meat Packing Company Dumps Waste into a River