recall the discussion of the "bargaining is easy" assumption in Coase theorem, in particular, the example of bargaining within groups with two polluters (railroad, R, and steel mill, S) and one victim (laundry, L).

a) For any possible compensation agreement in coalition A1 (all three firms team up, S and R go out of business, and L (that obtains all the profits of 40) pays nonnegative compensations to both S and R) show that there exists an incentive for one or several group members to renege on the deal (because they can be made better off in another coalition).

b) Repeat the analysis in a), this time starting off with coalition A5 (all three firms stay alone) rather than A1.