Pollutants

A chemical plant's production adds pollutants to a stream which irrigates a farm's crops. The pollutants damage the farm's crops, increasing the firm's costs by $800 per month. The crop damage may be eliminated in two ways: the chemical plant can install a new filtering system costing $300 per month, or the farm can install a new irrigation system costing $600 per month.

-Refer to Pollutants.Suppose transactions costs are zero.Who should be made liable for the crop damage if the goal is to achieve an efficient outcome?

Question

Pollutants

A chemical plant's production adds pollutants to a stream which irrigates a farm's crops. The pollutants damage the farm's crops, increasing the firm's costs by $800 per month. The crop damage may be eliminated in two ways: the chemical plant can install a new filtering system costing $300 per month, or the farm can install a new irrigation system costing $600 per month.

-Refer to Pollutants.Suppose transactions costs are zero.Who should be made liable for the crop damage if the goal is to achieve an efficient outcome?

Quizplus · Accepted Answer

With zero transaction costs, the Coase Theorem suggests that parties can negotiate to reach an efficient outcome regardless of who is initially made liable.

Pollutants A Chemical Plant's Production Adds Pollutants to a Stream Which