Question

Farmer Owens has an apple orchard that must be pollinated by bees in order to bear fruit. Farmer​ Owens's neighbor,​ Maude, owns beehives with bees that can pollinate the apple trees. Suppose the benefit of the bees to Farmer Owens is ​$ per year. Suppose the bees provide no benefit to Maude but she must pay ​$ per year to maintain the hives. If Farmer Owens and Maude engage in Coase​ bargaining, what would likely​ result?

Answer 1

Answer: A. Farmer Owens would pay Maude between $3,000 and $5,000 to maintain the hives.

Step-by-step explanation:

Coarse bargaining refers to a scenario where parties involved in a conflict over property rights can reach an efficient agreement that would reflect the costs and values of the property in question.

In this scenario, Farmer Owens is making a benefit of $5,000. Owens would therefore be willing to pay a maximum of $5,000 for the benefit and no more.

Maude spends $3,000 on the hives which means that she needs a minimum of $3,000 to cover those costs.

They should therefore reach an agreement where Farmer Owens would pay between $3,000 and $5,000 to Maude so that she can maintain the hives.