1. Assume that everyone agrees that global warming is both real and caused by humans. Give two major reasons why bargaining in the spirit of Coase is unlikely to resolve the problem of excess carbon emissions.

2. Two dairy farmers, Ben and Jerry, share a common pasture. Each has a choice of grazing 1 or 2 cows on the pasture. If 2 cows graze on the pasture, each will give 1,000 gallons of milk each year, which may be sold for $1 each at the local farmers' market. If 3 cows graze on the pasture, the grass will be thinner and each will give 750 gallons of milk. If 4 cows graze on the pasture, the grass will have little chance to recover and each cow will only give 400 gallons of milk.

a. What is the efficient number of cows to keep on the common pasture?-?2, 3, or 4? Explain.

b. If Jerry keeps 1 cow in the pasture, how many should Ben keep? (Assume that the only thing that concerns Ben is revenue received at the farmers' market.)

c. If Jerry keeps 2 cows in the pasture, how many should Ben keep?

d. Repeat your analysis for Jerry. What outcome are we likely to see?-?2, 3, or 4 cows in the pasture?

e. What strategies might be useful in preventing overgrazing on the commons?