2. Suppose that “gunk” is a pollution by-product of manufacturing computer processors. Environmental activists propose regulation to limit emissions of gunk. The proposed regulation leads to pollution-control costs that are heavily concentrated upon the small number of firms that produce computer processors. Control costs under the proposal are estimated to be approximately

$100 million per manufacturing facility per year. The benefits of reduced gunk emissions are thinly spread out among the 12 million or so people who live in the region where computer processors are manufactured.

It is estimated that each of the 12 million people living near a facility will typically incur around $50 per year in external costs associated with uncontrolled gunk emissions, mostly from occasional mild coldlike symptoms, but gunk is not known to be linked to any deaths, debilitating injuries, or birth defects.

a. Using Oye and Maxwell’s terminology, is this an example of a

“Stiglerian” or an “Olsonian” regulatory situation? Carefully explain your reasoning.

b. Describe the most likely political economic outcomes of proposed gunkcontrol regulation. Will regulation occur? If so, what form might it take, and how stable will it be? Carefully explain your reasoning.