Questions on “The Problem of Social Cost” by Coase Does the existence of transac
ID: 1157978 • Letter: Q
Question
Questions on “The Problem of Social Cost” by Coase
Does the existence of transaction costs eliminate the probability of bargaining completely? Explain.
If bargaining does NOT take place after the court’s ruling, then what can we safely deduce according to Coase? (NOTE: I did not specify any conditions regarding
transaction costs.
Apply the Coasian analysis to thefour cases: Sturges v. Bridgman, Cooke v. Forbes, Bryant v. Lefever, andBass v. Gregoryusing the table I went over in class.
Define the “Invariance Hypothesis” or “The Strong Form of the Coase Theorem.” Do you agree or disagree with it? Does your analysis of the previous cases exhibit the “Invariance Hypothesis”? Explain.
Explanation / Answer
No existence of transaction costs do not eliminate the probability of bargaining completely because according to the Coase Theorem, economic efficiency will be achieved regardless of any externalities(transaction costs in this case)
We can safely deduce that the two parties have still not reached a common ground and thus bargaining will not take place even after the court's ruling.
The invariance hypothesis explains similarities and differences between how an idea is perceived during ordinary usage and how is it understood when there is a complicated case.
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