Negotiating an Efficient Outcome for a Shared Resource
A chemical factory and a commercial fishery both operate on the same river. The factory's production process releases a pollutant into the river, which reduces the fishery's harvest. The factory is currently operating at a level that maximizes its own profit, without considering the harm to the fishery. This initial situation is inefficient for the two parties combined. Analyze how the factory and the fishery could potentially reach a new agreement that is both efficient and leaves both parties better off than they are initially. In your answer, describe the nature of such an agreement and the fundamental principle that allows for this mutually beneficial change.
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