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Question: The fence between two farmer's properties has fallen down, the cost of having it replaced is $1,000. This causes problems for both as one farmers sheep keeps straying onto the other farmer's property and eating their crops. the cost of recovering the sheep is $2, 300, the value of lost crop production is $2, 800. Local laws imply that neither farmer can unilaterally replace the fence, they must both agree to its replacement.

If the farmers bargain over the cost of replacing the fence that each has to pay, and have equal bargaining skill, how much does each contribute to the cost of the new fence? Draw a diagram to illustrate your answer.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M93126405

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