Question: A tannery firm established five decades before in a rural village has polluted a river used by local people for watering, fishing, cleaning and drinking

A tannery firm established five decades before in a rural village has polluted a river used by local people for watering, fishing, cleaning and drinking An organization working to protect human right verified the illegal action of the firm so that a local government can measure 6 the loss to farmers and take legal action accordingly The punishment imposed by the local government is either to relocate the firm or pay compensation to victims to internalize the damage made so far and abate future pollution emissions to the socially optimal level of pollution The relocation costs the firm 100 million birr while the compensation and abatement costs it 75 million birr The tannery firm goes for abatement and compensation Should the local government implement the policy change .Why? Does the policy change have Pareto improvement? Explain.

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