Final answer:
Coaseian bargaining and zoning or other rule-making are two approaches to managing externalities, each with its own advantages and disadvantages.
Step-by-step explanation:
When it comes to managing externalities, there are arguments for and against Coaseian bargaining versus zoning or other rule-making.
Coaseian Bargaining:
The argument for Coaseian bargaining is that it allows parties to negotiate and reach mutually beneficial agreements to internalize externalities. In the case of the railroad and the farmer, Coase argued that if property rights were clearly defined, the farmer and the railroad could negotiate and come to an agreement on how to address the spillover.
Zoning or other rule-making:
The argument for zoning or other rule-making is that it provides a clear and enforceable solution to externalities. In the case of the railroad and the farmer, zoning regulations could require the farmer to build a fence or the railroad to place a gadget on the locomotive's smokestack.
Both Coaseian bargaining and zoning or other rule-making have their merits and drawbacks, and their effectiveness may depend on the specific situation and the willingness of the parties involved to cooperate.