Scenario 18.1:
It is the factory's choice whether to install a filter. It is the choice of the nearby fishermen whether to install a treatment plant. Dollar figures show profit. The factory and the fishermen can negotiate costlessly, and no one else is affected by the result.
Factory Fishermen
A: No filter or treatment plant $10,000 $2,000
B: Filter; no treatment plant $6,000 $10,000
C: No filter; treatment plant $10,000 $4,000
D: Filter; treatment plant $6,000 $6,000
-Refer to Scenario 18.1. If the fishermen are given the right to clean water,
A) the outcome will be more efficient than if the factory is given the right to use the water as it sees fit.
B) the outcome will be less efficient than if the factory is given the right to use the water as it sees fit.
C) the efficient outcome will occur no matter who is given which property right, and the individual gains will be the same in each case.
D) the factory will be forced to shut down.
E) the efficient outcome will occur no matter who is given which property right, but how that maximum gain is split will be determined during bargaining.

Question

Quizplus · Accepted Answer

The Coase Theorem suggests that if bargaining costs are negligible and property rights are clearly defined, the allocation of resources will be efficient regardless of who holds the rights. The difference lies in how the gains from the efficient outcome are distributed, which will be determined through negotiation.

Scenario 18.1: It Is the Factory's Choice Whether to Install a Filter