Coase (1960) Theorem Flashcards
When could the feasibility of a bargaining solution be compromised?
If the numbers are large then large transaction costs could be involved. Possibly therefore rendering one party unable to participate in the bargaining. For this reason, governments etc. may prefer just to tax an distribute tradable permits.
(If there are incomplete property rights and if costs existing or too high)
What seven problems are related to the bargaining theory?
1) failure to ORGANISE themselves, especially if large in number.
2) sufferers may not have SUFFICIENT FUNDS to compensate polluters for the cost of reducing pollution.
3) individual polluters may be reluctant to take the lead in negotiations, preferring someone else to take the lead. Therefore the get a FREE RIDE
4) other polluting firms may MOVE to the area TO TAKE ADVANTAGE of payouts from sufferers
5) PERFECT INFORMATION is needed to quantify payments
6) COST OF NEGOTIATIONS can be high if there at lots of sufferers or polluters. Therefore it may just be best to utilise non-market based methods such as taxes or tradable permits.
7) can be hard to IDENTIFY the social optimum (Qs)
