In a society, there is 1 firm (polluter) and 2 individuals, A and B (pollution victims). The firm incurs all abatement costs, and individuals A and B both incur damages from pollution. Society faces a choice between "low", "medium" and "high" emissions, with the following abatement costs and damages. All numbers in thousands of dollars. Emissions Low Medium High Abatement Costs 20 5 0 Damages, A Damages, B 0 0 7 12 14 16 Unfortunately, this is a highly unequal society. Individual A is rich and well- connected. Individual B is poor and has no rights, and is shunned by the rest of society. Thus, any negotiations that take place can only be between the firm and Individual A; Individual B has no way to take part in the negotiations. 1. (3 pts) What is the socially efficient level of emissions? 2. (3 pts) Suppose the firms owns the right to pollute, and transaction costs are infinitely high. What level of emissions will the firm choose? Is this outcome socially efficient? 3. (6 pts) Suppose transaction costs were zero, and the firm owned the right to pollute. Will the firm and individual A reach an agreement over the level of emissions? If so: (i) what level of emissions will they negotiate (ii) what is the maximum price individual A is willing to pay the firm (iii) what is the minimum possible price the firm is willing to accept (iv) Is the resulting outcome socially efficient? 4. (3 pts) Suppose individual A owns the right to pollute, and transaction costs are infinitely high. What level of emissions will the individual choose? Is this outcome socially efficient?