Suppose you serve on an environmental policy planning board for the federal gove

Question

Suppose you serve on an environmental policy planning board for the federal government. Your task is to propose a policy initiative aimed at reducing urban air pollution, using the assignment of property rights according to the Coase Theorem. Assume that the major polluters to be targeted are commuter bus companies and that the major parties affected are the collection of city dwellers residents and workers. Describe your proposal in detail, and include the following:

a. Whether the rights are to be assigned to city dwellers or to bus companies.

b. How these rights are to be defined.

c. How the rights are to be distributed to the parties.

d. Whether the rights are to be auctioned or sold, and if so, at what price.

Explanation / Answer

a) According to Coase theorem, it does not matter who has the property rights. Efficient outcome will be reached irrespective of who has the property rights.

b) Right has to be defined as either city dwellers will have the right to clean air and be compensated for it by bus companies or bus companies have the right to clean air in which case both will reach an agreement beneficial to both.

d) if the rights to clean air are with city dwellers

Companies will give compensation to city dweller which covers the loss of utility of residents from bad air and which is less than the loss companies have to bear because of not being allowed to carry out their operations.

If the rights are with bus companies,

then city dweller will pay the companies to install something that would clean the air. The cost that they would be willing to pay would be less than or equal to the loss from bad air and companies would accept it only if it covers their loss from it.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.