1.12. Ronald owns a cattle farm at the source of a long river. His cattle’s waste flows into the river and down many miles to where Carla lives. Carla gets her drinking water from the river.

By allowing his cattle’s waste to flow into the river, Ronald imposes a negative externality on Carla. In each of the two following cases, do you think, that through negotiation, Ronald and Carla can find an efficient solution? What might this solution look like?

a. There are no telephones, and for Carla to talk to Ronald, she has to travel for two days on a rocky road.

b. Carla and Ronald both have e-mail access, making it costless for them to communicate.