A chemical factory and a fishing club share a lake.Producing chemicals creates water pollution that harms the fish.Initially the lake is owned by no one.Keeping in mind the Coase theorem,suppose transactions costs are low and the chemical factory is given ownership of the lake.Compared to the situation with no property rights,the quantity of chemicals produced

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With the ownership of the lake, the chemical factory now has to take into account the harm caused to the fishing club, as they now have a property right to the lake. They may decide to produce fewer chemicals to avoid harming the fish and damaging the resource they now have an ownership of. This demonstrates the Coase theorem, where if property rights are well-defined and transactions costs are low, parties can negotiate and come up with an efficient solution to maximize the value of the resource.

A Chemical Factory and a Fishing Club Share a Lake