44. Externalities and The Coase Theorem

[Wafa580]

Good job! nice explanation

[lolajames111]

Thank you for explaning..But how do you determine the optimal solution when there are no "numbers" attached. e.g. The doctor arrived at the building many years ago then the candy maker only recently? How would coase approach this?

[intromediateecon]

@lolajames111 Your example implicitly supposes that the doctor has the property right by being there first. Then, It is up to the candymaker to either pay up or stop making candy. As far as translating to qualitative ('no numbers'), we only need to know that whoever values it more will end up with the right (if no t-costs). That's a qualitative statement, but to drive the point home, my example is quantitative.

[lovelplants]

ay.. this is the man.. he's so good in lecturing..:)

[matteodx]

@intromediateecon the video was really helpful, best one around on the topic.

I have one question though: does it really matter if the rights are specified at all? If no rights are present, the candyman will surely continue with his noisy production, but the doctor will still value silence to be worth more than the candyman values noise, so bargaining could still take place and it would still be possible to achieve an efficient outcome. How do clearly defined rights change the picture at all?

[intromediateecon]

@matteodx Very good question. Well-understood power arrangements (or even strong social norms) can sometimes substitute for well-specified property rights in the sense that the legal letter of the law specifies who has what rights. To the extent that rights are unclear (even as defined by powerful social norms), individuals may struggle for control/power. Struggles for power are typically wasteful, destroying resources, so in a general sense it runs into the same problem as costly bargaining.

[starlovecross]

this is truly helpful! thanks for tutoring :)

[hautetopics]

Your video's are great! Definitely helping me with studying for my final exam! Thanks :)

[LaNoir231188]

Amazing video, really! I have always admired people who can explain academic topics in a simple way, without result banal but effective! Thumbs up!!

[michellepiano]

Thank you! This was very helpful for my exam tomorrow...

[Norskal]

This was a good attempt. I might make a basic one with a different analogy. :) 

[LKendall7]

I am currently doing a question on the coase theorem where I am asked to give a detailed view on how the issue of property rights can make the firm produce at the social optimum assuming two cases: A) the property rights belonging to the polluter. B) the property rights belong to the community of fishermen.

This question derives from a producer (polluter) affecting the fishermen living close toe the firm.

Help would be appreciated

[deberah3]

Thanks for this, it really helped!

[shirleykim1119]

Thank you for making this video, it's helpful , maybe you can go for more details, like quasilinear preferences ,and production externalities ~

[intromediateecon]

@shirleykim1119 Glad to hear this is helpful. I have a follow up video on how to think about the Coase Theorem in the Edgeworth Box. In that video, I don't do the case of quasilinear preferences, but I do describe the role of wealth effects. I have a video on quasilinear utility too, but I don't discuss the application of the Coase theorem there, just how to get demand for both goods. Thanks for the suggestion of a new video. When I get some time, I will record something like it.

[Romeowasbleeding1]

Thanks for this!

BTW you seriously look as if you belong to my fathers branch of the family.... odd

[Chaingangsoldiernit]

I have a question about negative externalities question : -

Given : Demand equation, Cost equation and Damages equation.

I know that Demand = Marginal Benefit.

Suppose I am given a cost equation : Hence Derivative of that would be Marginal Cost equation which can be used with MB curve to get private Q soultion.

My question is : = How do I find out the MSC equation. Because where MSC intersects with MB curve we have Q*. If I haven't given enough info, please get back to me.

Thx.

[intromediateecon]

@Chaingangsoldiernit Maybe an example would help clarify the difference btw MC and MSC. Suppose that MC = 2q and that your damages (I'm assuming marginal external cost) equal 10 + q... then

MSC = MC + MEC = 2q + (10+q) = 10 + 3q

Then, just get demand into MB form. For the private solution, solve MB=MC ==> Q*... for the social solution solve MB=MSC ==> Qeff.

All this should be in my other video on Externalities (Lecture 39).

[Chaingangsoldiernit]

@intromediateecon I will check your other vid...thx.