Collectively, the 1,000 residents of Green Valley value swimming in Blue Lake at $100,000. A nearby factory pollutes the lake water, and would have to pay $50,000 for non-polluting equipment. A. Describe a Coase-like private solution.

A Coase-like private solution would be a consensus solution between the Green Valley residents and the Factory, without any third party intervention (for example, intervention from the government).

Explanation:

In this situation, each one of the 1,000 residents value swimming in the lake at $100, because $100,000 / 1,000 = $100, and the company needs $50,000 to buy non-polluting machinery.

What the residents can do is to pay the company at least $50 each, because 1,000 residents x $50 dollars each = $50,000, which would be enough for the factory to buy the equipment.

If residents decide to pay more, say, $60, all the better, because this would probably be used by the firm to purchase even better equipment, which would increase the benefit for both the firm and the Green Valley residents.

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