Question 1

________ suggest(s) that in the presence of an externality bargaining can achieve the socially efficient equilibrium regardless of the initial allocation of property rights.

Accepted Answer

The Coase theorem suggests that bargaining can achieve the socially efficient equilibrium regardless of the initial allocation of property rights. This means that as long as transaction costs are low and property rights are well-defined, parties can negotiate a mutually beneficial solution to an externality problem. Liability laws, the legal doctrine of standing, and the burden of proof are all legal concepts that may have some impact on the resolution of an externality, but they do not necessarily guarantee efficiency in the same way that the Coase theorem does.

Question 2

When a resource has no owner

Accepted Answer

When a resource has no owner, it is known as a common-pool resource. Although it may still have value and require protection, there is less incentive for individuals to invest in its maintenance and preservation compared to a resource owned by an individual or entity. This can lead to the degradation of the resource over time.

Question 3

Refer to the Figure above. If the damaging firm is emitting at the uncontrolled emissions level and is required to compensate damaged firms and individuals, the damaging firm has an incentive to

Accepted Answer

The damaging firm has an incentive to reduce emissions to e*, where marginal damages are equal to marginal abatement costs. This minimizes the total cost to the damaging firm while also reducing the negative impacts on other firms and individuals. If the damaging firm were to stop emissions entirely, they would lose the benefits of their production and may not be able to compensate the damaged parties. If they were to only pay the damages and continue emitting at the current level, they would still be contributing to negative externalities and potentially facing larger damages in the future. Therefore, reducing emissions to e* is the best choice for both the damaging firm and other affected parties.

Question 4

In the U.S. courts, those seeking to be compensated for damages due to environmental pollution must

Accepted Answer

Those seeking to be compensated for damages due to environmental pollution must demonstrate that the emissions at issue caused the damages presented and came from the specific defendant. Additionally, they must file an action within a specified period of time (typically 2-3 years). Therefore, all of the above are correct.

Question 5

Refer to the Figure above. If the damaging firm is emitting at the uncontrolled emissions level and is required to compensate damaged firms and individuals, the amount of that compensation would be __________.

Accepted Answer

The compensation would include the damages to all affected parties. In the figure, the areas of damage are represented by b, c, and d, hence the total compensation would be the sum of these damages, which is represented by option D - (b+c+d).

Question 6

When people can negotiate with each other to come up with mutually satisfactory ways to deal with environmental externalities with little or no involvement of the government this is referred to as ________.

Accepted Answer

A decentralized approach refers to allowing individuals or private entities to negotiate with each other to come up with solutions to environmental issues without much involvement from the government. This approach often involves the use of market mechanisms such as cap-and-trade systems or voluntary agreements to incentivize behavior that is beneficial for the environment. Moral suasion refers to the use of persuasion or social pressure to encourage individuals or organizations to act in a certain way. An incentive-based approach involves offering rewards or penalties to individuals or organizations to incentivize environmental behavior. A centralized approach involves the government using regulations or laws to address environmental issues.

Question 7

Common law systems rely on court proceedings where claims and counter claims are adjudicated to determine damages and compensation. These proceedings can involve

Accepted Answer

Common law systems rely on court proceedings where claims and counter claims are adjudicated to determine damages and compensation. These proceedings can involve private parties making claims of damages to private assets, private parties making claims of damages to public assets, and public agencies claiming damages to public assets. Therefore, all the options mentioned in A, B, and C are correct.

Question 8

Goods that give the same level of pleasure as ordinary goods and involve less environmental damage in either their production, use, or disposal are known as ________.

Accepted Answer

Goods that are less harmful to the environment are known as green goods. This means that they provide the same level of enjoyment as regular goods, but they are produced, used, or disposed of in a way that is more sustainable and environmentally friendly.

Question 9

The concept of strict liability means that

Accepted Answer

Strict liability is a legal concept that holds individuals or organizations responsible for their actions, regardless of their intentions or level of fault. In the context of environmental law, this means that polluters can be held liable for damages caused by their activities, even if they took reasonable precautions or did not intend to cause harm. This type of liability is often used to ensure that businesses and industries take proper precautions to prevent environmental damage, and to ensure that those who do harm the environment are held accountable for their actions.

Question 10

Liability laws are an effective way to incentivize efficient pollution solutions when

Accepted Answer

Liability laws are most effective when relatively few parties are involved, causal linkages are clear, and damages are easy to measure because it is easier to determine who is responsible for the pollution, what harm has been done, and how much compensation should be paid. When all three factors are present, liability laws create strong incentives for polluters to adopt more efficient pollution control measures.

Question 11

Negligence is a form of common law that

Accepted Answer

Negligence holds polluters responsible only if they have not taken steps to avoid damages. It is a legal principle that requires individuals to take reasonable care to avoid causing harm to others. In the case of pollution, a polluter may be held liable for damages if it is found that they did not take reasonable steps to prevent or mitigate the pollution.

Question 12

Regardless of who has the property rights to environmental resources

Accepted Answer

According to the Coase Theorem, if property rights are well-defined and transaction costs are low, the allocation of resources will be efficient and net social gains will be the same regardless of who holds the property rights.

Question 13

The Coase theorem states that social efficiency can be obtained through bargaining and

Accepted Answer

The Coase theorem states that social efficiency can be obtained through bargaining, but the gains to each party depend on the initial allocation of property rights. The efficient outcome is not necessarily achieved by assigning property rights to one party or the other, but rather by assigning them to the party that values them the most, who can then be compensated by the other party for the use of those rights.

Question 14

The problem of misuse of many environmental assets is a result of

Accepted Answer

When property rights over environmental assets are not clearly defined or are imperfectly specified, it leads to the problem of misuse. Without clear ownership or authority, individuals may overexploit or degrade natural resources. Private ownership and public ownership can both have their own advantages and disadvantages, but the key issue here is the lack of clear property rights. High transaction costs can also be a barrier to sustainable use of environmental assets, but it is not the primary cause of misuse.

Question 15

Nonjoint liability means

Accepted Answer

Nonjoint liability means that each party involved in a lawsuit can be held responsible for their portion of the damages, rather than each party being responsible for the entire amount. In other words, nonjoint liability allows for each party to be held separately responsible for their actions, rather than jointly responsible for all damages.

Question 16

When public goods are involved _____________ will not bring about efficient outcomes.

Accepted Answer

The answer of When public goods are involved _____________ will...

Question 17

Liability laws are one of the ways to ________ an externality.

Accepted Answer

Liability laws force individuals or firms to pay for the damage they cause to others, therefore internalizing the cost of their actions and reducing the negative externality they may create on society.

Question 18

The success of compensatory laws rely on aligning the damages assigned to each polluter with

Accepted Answer

Compensatory laws are designed to assign damages to each polluter based on the actual amount of injury they cause. This is important for creating a fair and just outcome, as polluters should be held accountable for the harm they cause to the environment and affected individuals or communities. Assigning damages based on marginal abatement costs, the amount of transaction costs, or the costs of clean up could lead to inequitable outcomes that do not accurately reflect the harm caused by each polluter.

Question 19

If the MAC and MD curves do not change based on who has the property rights,

Accepted Answer

The MAC and MD curves represent the societal costs and benefits of pollution, respectively, and are independent of who has the property rights to pollute. Therefore, the socially efficient equilibrium (where MC=MD) will be the same regardless of who holds the rights to pollute.

Question 20

Suppose both a chemical company and a commercial fishery operate on the same river. According to the Coase theorem the socially efficient level of emissions can be reached through bargaining between the two parties if ________ has the right to use the river.

Accepted Answer

The Coase theorem states that if property rights are well-defined and transaction costs are low, then the socially efficient outcome can be reached through bargaining between the parties regardless of who initially owns the property. Therefore, either the chemical company or the fishery can have the right to use the river and negotiate with the other party to reach an efficient level of emissions. The regulator is not necessary in this case as the parties can negotiate the solution themselves.

Quiz 10: Decentralized Policies: Liability Laws, Property Rights, and Voluntary Action