Firm A is working on Oil Exploration and Firm B is an Oceanic Research Institute is exploring the Ocean to reveal its secrets for the benefit of humankind. Firm B is not pleased with Firm A project. Firm B (ORI) issued a statement of concern that these oil explorations will have adverse impacts on Ocean and may endanger species.

What kind of a problem is this? and What is the root of this problem?

Consider 3 scenarios:

Scenario 1:Firm A's Oil Exploration is worth $2 million and Firm B's research is worth $13 million.

Scenario 2:Firm A's Oil Exploration is worth $16 million and Firm B's research is worth $6 million.

In each of the two scenarios above, what would be the resulting outcome if:

An Arbitration Court rules in favor of Firm A, and transaction costs are $12 million.

An Arbitration Court rules in favor of Firm B, and transaction costs are $12 million.

An Arbitration Court rules in favor of Firm A, and transaction costs are $8 million.

An Arbitration Court rules in favor of Firm B, and transaction costs are $8 million.

An Arbitration Court rules in favor of Firm A, and transaction costs are 0.

An Arbitration Court rules in favor of Firm B, and transaction costs are 0.

Scenario 3:

Firm A has two ways of dealing with this conflict:

1) to limit the size of exploration which will costs them $10 million

2) to shut down the Exploration for a total cost of $40 million.

Similarly, Firm B has two ways of dealing with this problem:

1) to raise funding to increase the size of their

research, which would cost a total of $16 million,

2) to shut down the research, which would cost a total of $80 million

Further, Firm A has reputation at stake in the amount of $30 million if the conflict continues

Using transaction cost analysis, what contractual agreement would result in this case?