Question

Describe an example of a problem that could be solved using the Coase theorem. Do this by defining a hypothetical situation where one individual is causing a negative externality on another individual. Describe whether it matters who holds property rights. Define the three necessary conditions for Coase theorem to work completely. Describe why a failure of these conditions will likely cause Coasian bargaining to fail.

Answer 1

Step-by-step explanation:

Theorem Utilization: Coase Theorem has been created to take care of the issue of market disappointment. Market disappointment exists where value component doesn't convey productive outcome.

Example : For instance, dairy cattle of Rancher wandered into close to field. this is a sort of negative externalities. On the off chance that property right is given to rancher, at that point he can sue Rancher for making harm crop. Yet, there is no privilege to rancher, it suggests that privilege has been given to farmer. Presently here rancher will attempt to repay Rancher to lessen the size of his cows group.

Three necessary conditions:

1. The rights of property should be well defined.
2. The rights of property should be transferable.
3. The cost of transaction must be sufficiently small.

It doesn't make a difference whom property right is given, there will be effective results. Coase hypothesis bombs where haggling cost rises or free rider issues are seen.