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Farmer Joe builds a levee to alleviate flooding on his property. Farmer Jane’s property, which is located next to Farmer Joe’s, also experiences flooding.
Farmer Joe’s levee may create a positive externality if
it also lessens flooding on Farmer Jane’s property.
Farmer Jane compensates him for the cost of building the levee.
it increases the value of his property.
he has to consume no resources to construct the levee.