Chapter 16, Externalities, Property Rights, and the Coase Theorem

23'. A competitive fishing industry consists of five independently owned and oper- ated fishing boats working out of the port of Ithaca. Assume that no other fishermen fish Cayuga Lake, and that the MC of operating a boat for 1 day is equivalent to 70 pounds of fish. (A boat left idle generates no costs.) The total catch per shoreline, in pounds, is given in the following table as a function of the number of boats fishing the east and west shores of the lake: (L03, L04) Total catch Number of boats per side East shore West share | |00 85 2 I80 I50 3 255 2 | 0 4 320 260 5 350 300 a. If each boat owner decides independently which side of the lake to fish and all boats are in plain View of each other, how many boats would you expect to find fishing each shore on any given day? What is the net catch (that is, the total catch from both shores, less operating costs)? b. Is this distribution of fishing craft optimal from the social point of view? If so, explain why. If not, what is the socially optimal distribution and the cor- responding net catch