3. (Coase Theorem) There are 10000 residents living in Lion Mountain, a very small town with little flat land for residential housing and they all live in very compact housing units. They look for space to build a satellite town in the neighborhood region to relieve the housing shortage problem even though the new locations are all a bit away from the town center where all residents work in daytime. For simplicity, suppose there are 1000 residents willing to move to live in satellite town and assuming the rest 9000 residents just want to stay and will not benefit nor suffer from their stay or movement ---the town is simply too crowded already. Each of these 1000 resident has a value for the satellite town, vi > 0, where i = 1, ... , 1000. There are two potential sites for satellite town. One site is called G, an unoccupied green field (no infrastructure, like roads, water supply, electricity, etc), which will cost CG for the whole development. Another site, B, is a region which is easier for whole development but now occupied by residents of another town called (BarBari) for doing businesses, which could not operate if the satellite town is developed there. The cost of development there is cg, which is much lower than Co, and the value of the business is R. 196> ; > 366 for any i = 1, ..., 1000 a. Suppose To achieve the socially efficient outcome, should the satellite town be built? If so, which site? If no, explain why. Show your argument with information above. (15 marks) b. State Coase Theorem. (6 marks) C. Assuming BarBari town has the right to doing business in site B, describe a private solution according to Coase Theorem to achieve social efficient outcome. (50 words Max] (6 marks) 9. Suggest two reasons why the private solution you propose in (c) might not work in practice. [ 50 words Max] (6 marks) 3. (Coase Theorem) There are 10000 residents living in Lion Mountain, a very small town with little flat land for residential housing and they all live in very compact housing units. They look for space to build a satellite town in the neighborhood region to relieve the housing shortage problem even though the new locations are all a bit away from the town center where all residents work in daytime. For simplicity, suppose there are 1000 residents willing to move to live in satellite town and assuming the rest 9000 residents just want to stay and will not benefit nor suffer from their stay or movement ---the town is simply too crowded already. Each of these 1000 resident has a value for the satellite town, vi > 0, where i = 1, ... , 1000. There are two potential sites for satellite town. One site is called G, an unoccupied green field (no infrastructure, like roads, water supply, electricity, etc), which will cost CG for the whole development. Another site, B, is a region which is easier for whole development but now occupied by residents of another town called (BarBari) for doing businesses, which could not operate if the satellite town is developed there. The cost of development there is cg, which is much lower than Co, and the value of the business is R. 196> ; > 366 for any i = 1, ..., 1000 a. Suppose To achieve the socially efficient outcome, should the satellite town be built? If so, which site? If no, explain why. Show your argument with information above. (15 marks) b. State Coase Theorem. (6 marks) C. Assuming BarBari town has the right to doing business in site B, describe a private solution according to Coase Theorem to achieve social efficient outcome. (50 words Max] (6 marks) 9. Suggest two reasons why the private solution you propose in (c) might not work in practice. [ 50 words Max] (6 marks)
