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4. Eddie Murphy and Rick James are neighbors, as depicted below in the images below. As their houses currently stand, both have a beautiful view
4. Eddie Murphy and Rick James are neighbors, as depicted below in the images below. As their houses currently stand, both have a beautiful view of the Sonoran Desert (disregard the turret) Eddie's Casa Rick's Casa Turret However, Rick is planning to build the turret depicted above, which will block Eddie's view of the desert. Eddie and Rick are friends, and Eddie knows of Rick's plans. Let: VR = Rick's value of the turret and VE = Eddie's value of the view (loss to Eddie if turret built) (a) What is the surplus of building the turret? (think net benefit) (2 pts) (b) Comparing VR and VE, under what condition is it efficient to build the turret? Write this in terms of VR and VE, as well as in words. (2 pts) (c) You must assign the property right: either you give Eddie the right to a pretty view, or give Rick the right to build a turret. Suppose Rick and Eddie are NOT able to bargain. Is the assignment of the legal rule going to affect the outcome? How will you make your decision to achieve efficiency? (4 pts)(d) Now suppose Rick and Eddie can bargain my; Using the possible values, ll in the possible allocation of property rights and then determine What will be the outcome under each scenario. Also, if a bargain is made at a price 9:, provide the bounds (max and min} for negotiation: {6 pts} m Iiiirays to allocate rights . Party that values their right more {what do these mean in words?): Riel: has the right to {ll in blank] Is a bargain made? Yes. No. What's the outcome? Eddie has the right to {ll in blank: No. Is a bargain made? Yes. What's the outcome? bargaining: Va:- lie If bargain made, ll in the range of If bargain made, ll in the range of bargaining: bargaining: _ s X s _ _ a X s _ Is a bargain made? Yes. No. Is a bargain made? Yes. No. What's the outcome? What's the outcome? yea ye If bargain made, ll in the range of If bargain made, ll in the range of bargaining: 5X5 (e) Based on the information provided, would you expect Rick and Eddie to bargain Wm not? Use economic analysis for your reason. (Your answer should be brief.) [2 pts) {t} Using the generalized values given, disu::ussisho-.iir howlr \"high\" transactions costs could be to ensure they are \"Io-ii.r enough\" forthe lGoase Theorem to apply. {3 pts) {g} Brigg summarize the result in terms of the Cease Theorem. (3 pts)
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