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Liability laws: Suppose MAC=720-5E and MD=3E are the equations of the curves in our Paper Mill-Fishery example, where Fishery has the right to clean water
Liability laws: Suppose MAC=720-5E and MD=3E are the equations of the curves in our Paper Mill-Fishery example, where Fishery has the right to clean water implying that the Paper Mill is liable for the damages to the Fishery for polluting river water. Prove that the Paper Mill's total private costs (TPC), which includes liability payments and TAC, at the socially efficient emission (E ) is minimum. [Hint: calculate TPC(E ) and compare it with TPC for a lower (EL = 60) and a higher (EH = 125) emissions to show that they are larger].
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