jones emits smoke and it affects smith (who is located downwind) negatively. the relevant costs and benefits to each part are shown in the box. assume that, by law, jones cannot emit smoke without smith's consent and that jones and smith can negotiate costlessly with one another. which of the following statements is/are false? The law (without negotiations) leads to an inefficient equilibrium. Jones will be willing to pay Smith up to
$40
to be allowed to pollute. Smith will have to be paid at least
$20
to allow pollution. The law (without negotiations) leads to an efficient equilibrium. Since costless negotiations are possible, Jones will pay Smith to accept pollution. Jones will be willing to pay Smith
$50
to allow him to emit smoke. After negotiations, if Smith and Jones divide the surplus equally, Jones will pay Smith
$40
for the rights to pollute.
