Question 1

If the chemical factory has the property right to use the river what bargaining will result in the socially efficient equilibrium? What are the net gains experienced by each party?

Accepted Answer

Since the chemical factory has the right to pollute,the fishery will need to pay the factory to get it to reduce its emissions.The socially efficient level of emissions is equal to 80 units of emissions.At this level of emissions,the MDC = MAC = $800.The fishery will need to pay the chemical factory $800 per unit of emissions it abates to get it to emit 80 tonnes.This "bribe" is equal to $128,000.The net gain to the fishery is equal to the reduction in total damage costs moving from unregulated emissions of 240 units to 80 units minus the bribe it pays to the chemical factory which equals $288,000 - 32,000 - $128,000 = $128,000.The net gain to the chemical factory is equal to the bribe it receives from the fishery less its total abatement costs which equals 128,000 - 64,000 = $64,000.

Question 2

List and very briefly explain the three problems encountered with the use of property rights as a technique to internalize externalities.

Accepted Answer

Property rights fail to result in the socially efficient level of emissions when:1)transactions costs are too high due to the presence of numerous parties to be involved in the negotiating process;2)property rights cannot be assigned due to the good being a public good such as an open access fishery;and 3)some other laws prevent property owners from capturing the full social value of the resource in question.

Question 3

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 involves individuals and groups negotiating among themselves to address environmental issues without relying on government intervention. This approach is often more efficient and effective because those directly affected by the externality have a greater incentive to find mutually satisfactory solutions. Moral suasion and incentive-based approaches may be used within a decentralized approach, but a centralized approach would involve government intervention.

Question 4

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 relies on clear property rights to determine who has the right to use the river. In the absence of any externalities, either the chemical company or the fishery could have the right to use the river, but whichever party has the right will be able to negotiate a socially efficient level of emissions with the other party. If the regulator has the right to use the river, then they could also reach the socially efficient level of emissions through regulation, but this would likely be more costly and less flexible than bargaining between the two parties.

Question 5

The more public an environmental good is,the more likely private property rights can be used to achieve the socially optimal level of emissions.
Public goods tend to be non-exclusionary making it difficult to assign property rights.

Accepted Answer

Public goods are non-excludable and non-rivalrous, making it difficult to assign private property rights effectively to manage their use and conservation, including the control of emissions.

Question 6

Production and consumption of green goods shifts the marginal abatement cost curve downward.

Accepted Answer

The production and consumption of green goods can reduce the cost of abating pollution, as these goods are designed to have lower environmental impacts. As a result, the marginal abatement cost curve shifts downward, meaning that it becomes cheaper to achieve a given level of pollution reduction.

Question 7

If no liability laws are in place,what damages will the chemical factory inflict on the fishery?

Accepted Answer

The answer of If no liability laws are in place,what...

Question 8

Illustrate graphically and very briefly explain how the production and consumption of green goods results in lower emissions.

Accepted Answer

The answer of Illustrate graphically and very briefly explain how...

Question 9

Coase proposed that in the case of an externality if transactions costs are low,bargaining can achieve the socially efficient outcome regardless of the initial allocation of property rights.

Accepted Answer

Coase theorem suggests that if there are low transactions costs, property rights don't matter since parties can negotiate to reach an efficient solution.

Question 10

What level of emissions will occur if the chemical factory is not regulated? What would the total abatement costs for the chemical factory be if emissions are controlled and reduced to zero?

Accepted Answer

The answer of What level of emissions will occur if...

Question 11

Define green goods and give two examples of green goods.

Accepted Answer

The answer of Define green goods and give two examples...

Question 12

The Coase theorem states that social efficiency can be obtained through bargaining and that the gains to each party involved will be identical regardless of who has the rights.
The net gains to each party depend on the initial allocation of property rights.

Accepted Answer

The Coase theorem states that as long as property rights are clearly defined and transaction costs are negligible, parties will bargain to an efficient outcome regardless of the initial allocation of rights. However, it does not claim that the gains to each party will be identical; the distribution of gains depends on the initial allocation of rights.

Question 13

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

Accepted Answer

Green goods are designed to provide the same level of pleasure or utility as ordinary goods but with less environmental impact. They can be produced using sustainable materials or processes, consume less energy or resources during use, and may be recyclable or biodegradable at the end of their lifecycle. Generic goods are basic, non-branded items that may or may not have any environmental advantages, while luxury goods are typically associated with high-end or premium products that are not necessarily environmentally friendly. Environmental goods are a broader category that includes any goods or services that are designed to address environmental problems, such as air or water pollution, climate change, or natural resource depletion.

Question 14

________ 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 in the presence of an externality, bargaining can achieve the socially efficient equilibrium regardless of the initial allocation of property rights. This means that even if one party has the property rights to create the externality, the other party can negotiate with them to reach an agreement that benefits both parties and leads to a more efficient outcome. Liability laws, legal doctrine of standing, and burden of proof are not directly related to this concept.

Question 15

Net social gains are independent of who has the property rights to environmental resources.
The net gains to society differ depending upon who holds the property rights to pollute.

Accepted Answer

Net social gains are not independent of who has property rights to environmental resources, as the incentives and motivations of the property owner can affect the conservation and use of the resource. Additionally, the net gains to society can also differ depending on who has the property rights to pollute, as the cost of pollution and its effects on public health and the environment should be considered in determining the appropriate allocation of property rights.

Question 16

If the fishery has the property right to use the river what bargaining will result in the socially efficient equilibrium? What are the net gains experienced by each party?

Accepted Answer

The answer of If the fishery has the property right...

Question 17

When a good is an open-access resource,the free-rider problem effectively defeats the chances that a socially efficient equilibrium can be achieved through property rights assignments and bargaining.

Accepted Answer

When a resource is open-access, there are no property rights assigned to it and anyone can use it without paying. This creates a situation where individuals have an incentive to engage in overuse or overexploitation of the resource, as they do not bear the full cost of their actions. This is known as the tragedy of the commons or free-rider problem, and it makes it difficult to achieve a socially efficient equilibrium through property rights assignments and bargaining. Thus, the statement is true.

Question 18

If the government puts in place a liability law that requires the chemical factory to compensate the fishery for the damages it causes,what level of emissions will take place and what are the total costs of compliance for the chemical company?

Accepted Answer

The answer of If the government puts in place a...

Question 19

If the MAC and MD curves do not change based on who has the property rights,the same socially efficient equilibrium will be reached independent of who holds the rights to pollute.

Accepted Answer

The social efficiency of pollution control is determined by the intersection of the marginal abatement cost (MAC) curve and the marginal damage (MD) curve. This intersection point represents the optimal level of pollution control that maximizes the net social benefits. As long as these curves do not change, the socially efficient equilibrium will be the same regardless of who holds the property rights over pollution.

Question 20

Which of the following is NOT a reason why private bargaining can fail to achieve the socially optimal level of emissions?

Accepted Answer

Net social gains from bargaining do not depend on the initial assignment of property rights according to the Coase Theorem. The theorem posits that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.

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