Stephen owns a house at the peak with a commanding harbour view. However, a local university owns the land below Stephens apartment and has decided to build a new residential hall there. The university can either build a 10-story hall, which leaves Stephens view intact, or a 20-story hall, which completely blocks Stephens view from his house. The gains to students (net of construction costs) and the damage to Stephen are summarized in the following table. All the information is public knowledge.

Gains to students (in millions of HK$): 5 (10-story); 10 (20-story)

Damage to Stephen (in millions of HK$): 0 (10-story); 4 (20-story)

1. It is socially efficient if the university builds [ANS1 (10-story/20-story)].

A) a 10-story hall

B) a 20-story hall

2. Suppose that negotiation costs are negligible. If Stephen has the legal right to have an unobstructed view, the university will build [ANS2 (10-story/20-story)]. If the university has the right to select whichever plan the students want, the university will build [ANS3 (10-story/20-story)].

A) a 10-story hall; a 10-story hall

B) a 20-story hall; a 10-story hall

C) a 10-story hall; a 20-story hall

D) a 20-story hall; a 20-story hall

3. Suppose that the party which initiates negotiation will have to pay $1.1 million to hire lawyers. If Stephen has the legal right to have an unobstructed view, the university will build [ANS4 (10-story/20-story)]. If the university has the right to select whichever plan the students want, the university will build [ANS5 (10-story/20-story)].

A) a 10-story hall; a 10-story hall

B) a 20-story hall; a 10-story hall

C) a 10-story hall; a 20-story hall

D) a 20-story hall; a 20-story hall