Question

The total profit from logging is $8,000, which is evenly divided among shareholders. Environmentalists wish to stop all logging and are willing to pay $25 each to do so. Neutral parties are uninterested in this debate. (a) Is a law banning logging Pareto optimal? Is it Kaldor- Hicks efficient? (b) Suppose that owners of the timber company would be fully compensated if logging were prohibited, but this would require raising tax revenue of $8,000 and paying it to shareholders. For each of the following scenarios, state whether a law banning logging, coupled with com- pensation, is Pareto optimal, and whether it is Kaldor- Hicks efficient: (i) The tax is assessed equally on both environmental- ists and neutral parties; (ii) The tax is assessed only on environmentalists.

Answer 1

No the law is not Pareto optimal, since shareholders lose the profits from logging.

It is Kaldor Hicks efficient,

I think question is incomplete