Question

In 2011, a tsunami along the Japanese coast damaged nuclear power plants that leaked dangerous radiation into the surrounding population. If this leakage could have been prevented, given a disaster of this level, which answer would be a Coasian solution to this externality?

a. the injured demanding compensation through a class-action law suit
b. the government fining the firm which owns the power plants
c. a ban on all future Japanese nuclear power plants and the shutdown of existing ones in Japan
d. None of these would be a Coasian solution.

Answer 1

a. the injured demanding compensation through a class-action law suit

Step-by-step explanation:

A Coase theorem, developed by Ronald Coase, states that when the transaction costs is very low, the two parties will have the benefit to bargain and arrived at an efficient outcome or conclusion in the presence of an externality.

Accordingly, when the leakage of dangerous radiations which was leaked during the Tsunami hitting the nuclear power plant could have been prevented, then as the Coasian solution to externality would be filing a class action law suit by the injured people demanding compensation for the damage.

Hence the correct option is -- (a)