Paul owns a mushroom farm.The smell from the farm reduces the value of adjacent houses by a total of $30 000.Suppose that the benefit of the mushroom farm to Paul is $20 000.Assuming that Paul has the legal right to own the farm, a possible private solution to this problem is that:
A)adjacent property owners pay $20 000 to Paul to stop farming mushrooms
B)Paul pays the adjacent property-owners $25 000 for their loss in house-values
C)adjacent property owners pay $25 000 to Paul to stop farming mushrooms
D)there is no private solution that would improve this situation

Question

Quizplus · Accepted Answer

Option C suggests that adjacent property owners pay $25,000 to Paul to stop farming mushrooms. This would compensate Paul for his benefit of $20,000 and also provide $5,000 to property owners for their loss in house values. This would be a mutually beneficial solution as both parties would gain from it. Option A would not compensate the property owners adequately, and option B would not be a viable solution as it would be a financial burden on Paul. Option D is not correct as there is a private solution available.

Paul Owns a Mushroom Farm