Some of the mangos from your neighbor's mango tree drop into your yard. You don't like mangos, and the fallen mangos make it harder to mow your lawn. Your neighbor values the tree at $300, and your cost of dealing with it is $500. If your neighbor has the legal right to keep the tree, what would be an efficient outcome according to the Coase theorem?

Question

Quizplus · Accepted Answer

According to the Coase theorem, if parties can negotiate without cost, they can reach an efficient outcome regardless of the initial allocation of rights. In this scenario, paying your neighbor $400 to cut down the tree is efficient because it is less than your cost of $500 to deal with the fallen mangos, and more than the neighbor's valuation of the tree at $300. This way, both parties are better off.

Some of the Mangos from Your Neighbor's Mango Tree Drop