Consider two neighbors who each run a small business. Juan grows and sells vegetables. Amber grows and sells flowers. Currently, Juan uses a herbicide on his vegetables, because he can grow more crops with the use of herbicide. Specifically, he earns $1,500 more during the years when he uses herbicide. Amber's flower farm is harmed by Juan's use of herbicide because it drifts to her farm and kills $3,000 worth of flowers each year. Which would be an efficient solution to this problem?

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This solution creates an incentive for Juan to stop using herbicide while compensating him for the loss in income. It also ensures that Amber is fairly compensated for the harm caused to her business. The government ban on herbicide (option A) would be too extreme and may not necessarily be the most efficient solution. Selling the flower business (option B) would be unfair to Amber and may not solve the problem in the long run. Lastly, the current situation is not efficient as it creates a negative externality for Amber's business.

Consider Two Neighbors Who Each Run a Small Business