Figure 14.2 Amit and Bree are the only two homeowners on an isolated private road.Both agree that installing street lights along the road would be beneficial and want to do so.Figure 14.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 14.2.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Question

Figure 14.2  Amit and Bree are the only two homeowners on an isolated private road.Both agree that installing street lights along the road would be beneficial and want to do so.Figure 14.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 14.2.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Quizplus · Accepted Answer

Private bargaining, especially when parties are fully informed of each other's preferences and cannot deceive each other, can lead to efficient outcomes according to the Coase theorem. This suggests that Amit and Bree could negotiate a mutually beneficial arrangement that results in the optimal quantity of street lights being installed.

Figure 142 Amit and Bree Are the Only Two Homeowners