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Terms in this set (21)
Efficient Property Rights Structures
exclusivity, transferability, enforceability
all benefits and costs should only accrue to the owner
Property rights should be transferable to others.
Property rights should be secure from seizure or encroachment.
a cost or benefit, not transmitted through prices, caused by someone else's actions.
occurs when private interests contradict the social ends of an efficient allocation of resources
1st Welfare Theorem
If property rights are not well-defined, then market failure will occur, and externalities are a direct result of a lack of well-defined property rights.
the market outcome is a "good" outcome-If there are no externalities
willingness to pay minus the actual payment or the area under the demand curve and above the price line
the area above the marginal cost (supply) curve and below the price line. This is the net benefit received by the seller
marginal private costs
marginal costs that are borne directly by a firm producing a good.
marginal external costs
the external cost imposed by the last unit of the good.
marginal social costs
all of the costs (private and external) associated with the production of the last unit of the good.
fundamental assumption of Coasean Solution
transactions costs between parties are low.
the costs that are paid to organize economic activity, including information costs, negotiation, writing/enforcing contracts,
why discount future damages?
1. pure rate time preference 2. opportunity cost of capital
Types of Uncertainty
system does not return to its original state after forcing is removed
in what scenarios does Coasean approach to environmental problems lead to free-riding?
1. large number of parties 2. non-excludable good
advantages of Coasean solution
1. efficient when conditions are right 2. government doesn't need to know MAC and MD curves
disadvantages of Coasean solution
1. breaks down with transaction costs 2. suffers from free riding when goods are non-excludable
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