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Discuss Coarse Theorem and Bargaining concept using necessary illustrations

Discuss Coarse Theorem and Bargaining concept using necessary illustrations

Answers

The Coase Theorem suggests that " the efficient solution will-'be achieved independently of
who is assigned the ownership rights, so long as someone is assigned those rights". The
reasoning for this is that if the chemical firm is assigned the property rights, the fishing club will be prepared to pay the chemical firm an amount up to the value of the damage being
caused, to have the chemical firm reduce its output and that at any point past X* the damage
being caused exceeds the firms profits from doing so. Hence the firm is willing to accept the payment to reduce its output to X*. Similarly if the fishing club has the rights, it will not allow the firm to produce past X* as the damage caused to the fishing club is greater than any payment the firm would be willing to make. The establishment of property rights thus creates a framework which allows bargaining and the achievement of the socially optimal outcome.

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NatalieR answered the question on June 21, 2022 at 09:26

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