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Question: Consider the owner of a large tract of undeveloped land that is suitable for recreational use by campers, bikers, hikers, and so on. If the land is left open, users will enter and enjoy a benefit of $3,000, but they may suffer accidents. Specifically, if users enter and take no care, they will suffer expected damages of $2,000, whereas if they enter and take care of $200, they will suffer expected damages of $500. The owner of the land cannot take care to reduce the risk of accidents, but he can fence in the land at a cost of $1,000, which prevents entry altogether.

(a) Calculate the net benefit from each of the following options:

(1) owner fences land;

(2) owner does not fence land, users enter and take no care;

(3) owner does not fence land, users enter and take care. Which is most efficient?

(b) Many states have passed laws that immunize owners of undeveloped land from liability if they open the land for recreational use. What outcome in (a) will result under this rule?

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Management Theories, Management Studies

Category:- Management Theories
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