Firm Alpha can leave its windows uncovered or pay to installshutters on its windows. Whether the shutters are installed has aneffect on Firm Beta’s profit, as illustrated in the table 1. 2. 3.4. 5. below. Does the shutter installation create a positive or anegative externality? Explain. Is it efficient for the shutters tobe installed? Explain. Suppose that Firm Alpha has the propertyrights. What will happen if the firms negotiate? Suppose that FirmBeta has the property rights. What will happen if the firms nego-tiate? Relate your answers above to the Coase Theorem.
