Question

Farmer Owens has an apple orchard that must be pollinated by bees in order to bear fruit. Farmer​ Owens's neighbor,​ Maude, owns beehives with bees that can pollinate the apple trees. Suppose the benefit of the bees to Farmer Owens is ​$1,000 per year. Suppose the bees provide no benefit to Maude but she must pay ​$2,000 per year to maintain the hives. If Farmer Owens and Maude engage in Coase​ bargaining, what would likely​ result?

A. Farmer Owens would pay Maude between​ $0 and ​$1,000 to maintain the hives.
B. Maude would pay Farmer Owens between ​$1,000 and ​$2,000 to maintain the hives.
C. Farmer Owens would pay Maude at least ​$2,000 to maintain the hives.
D. Farmer Owens would pay Maude between $1,000 and $2,000 to maintain the hives.
E. Farmer Owens would not be willing to pay Maude an amount such that she would maintain the hives.

Answer 1

In Coase bargaining, Farmer Owens would likely pay Maude between $1,000 and $2,000 to maintain the hives.

Step-by-step explanation:

In this scenario, Farmer Owens and Maude are engaging in Coase bargaining to determine the amount that Farmer Owens would pay Maude to maintain her beehives, which are necessary to pollinate Farmer Owens's apple orchard. The benefit to Farmer Owens from the bees is $1,000 per year, while the cost for Maude to maintain the hives is $2,000 per year. In Coase bargaining, the outcome would likely be that Farmer Owens would pay Maude between $1,000 and $2,000 to maintain the hives (Option D).