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    Coase Theorem: 1. Assume

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    KeshavSeeam
    The Coase Theorem discusses how bargaining between two parties, Bart and Lisa, can lead to an efficient outcome regardless of the initial allocation of property rights. It states that if transaction costs are zero, bargaining will lead the parties to maximize total benefit. Specifically, (1) if Bart owns the property, a bargain is possible if Lisa's marginal damage is greater than Bart's marginal benefit minus marginal cost, and (2) if Lisa owns the property, a bargain is possible if Bart's marginal benefit minus marginal cost is greater than Lisa's marginal damage. This bargaining can determine the efficient level of output.

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    Coase Theorem: 1. Assume

    Uploaded by

    KeshavSeeam
    31 views4 pages
    The Coase Theorem discusses how bargaining between two parties, Bart and Lisa, can lead to an efficient outcome regardless of the initial allocation of property rights. It states that if transaction costs are zero, bargaining will lead the parties to maximize total benefit. Specifically, (1) if Bart owns the property, a bargain is possible if Lisa's marginal damage is greater than Bart's marginal benefit minus marginal cost, and (2) if Lisa owns the property, a bargain is possible if Bart's marginal benefit minus marginal cost is greater than Lisa's marginal damage. This bargaining can determine the efficient level of output.

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    Economic fundamentals and explanation on coarse theorem

    Original Title

    Coase Theorem

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    The Coase Theorem discusses how bargaining between two parties, Bart and Lisa, can lead to an efficient outcome regardless of the initial allocation of property rights. It states that if transaction costs are zero, bargaining will lead the parties to maximize total benefit. Specifically, (1) if Bart owns the property, a bargain is possible if Lisa's marginal damage is greater than Bart's marginal benefit minus marginal cost, and (2) if Lisa owns the property, a bargain is possible if Bart's marginal benefit minus marginal cost is greater than Lisa's marginal damage. This bargaining can determine the efficient level of output.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    31 views4 pages

    Coase Theorem: 1. Assume

    Uploaded by

    KeshavSeeam
    The Coase Theorem discusses how bargaining between two parties, Bart and Lisa, can lead to an efficient outcome regardless of the initial allocation of property rights. It states that if transaction costs are zero, bargaining will lead the parties to maximize total benefit. Specifically, (1) if Bart owns the property, a bargain is possible if Lisa's marginal damage is greater than Bart's marginal benefit minus marginal cost, and (2) if Lisa owns the property, a bargain is possible if Bart's marginal benefit minus marginal cost is greater than Lisa's marginal damage. This bargaining can determine the efficient level of output.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Download as docx, pdf, or txt
    of 4

    Coase Theorem

    1.

    Assume:

    Bart owns the property


    Bart
    Net incremental gain from producing an extra
    unit of output: (MB-MPC)
    As long as Bart receives: ______________, he
    will not produce.
    Payment received by Bart > (MB-MPC)
    Lisa
    Willing to pay Bart not to produce if
    Payment made

    < MD

    (Combining 1 and 2)
    Opportunity for a bargain exists if

    MD > (MB-MPC)

    (2)

    (1)

    Output level to the left of Q*


    - The amount of $ Bart would
    demand to reduce his output would
    exceed Lisas willing to pay.
    Lisa is willing to pay more than (MBMPC) at every output level to the right
    of Q*

    2. Assume:
    Lisa owns the property
    Bart
    Willing to pay Lisa if
    Payment made by Bart < (MB-MPC)

    (3)

    Lisa
    Willing to accept payment from Bart if
    Payment received

    > MD

    (4)

    (Combining 3 and 4)
    Opportunity for a bargain exists if

    MD < (MB-MPC)
    - For the 1st unit of output Bart
    produces, his marginal profit far
    exceeds the MD to Lisa, so there is
    ample room to bargain and allow
    Bart to produce this unit.

    Output level to the left of Q*


    - The amount of $ Bart would
    demand to reduce his output would
    exceed Lisas willing to pay.
    Lisa is willing to pay more than (MBMPC) at every output level to the right
    of Q*

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