In which cases are the Coase theorem’s assumptions likely to be true? In other words, when will the parties be likely to strike an efficient bargain? How do you know?
a. My neighbor wants me to cut down an ugly shrub in my front yard. The ugly shrub, of course, imposes an external cost on him and on his property value.
b. My neighbors all would love for me to get that broken-down Willies Jeep off my front lawn. It’s been years now, after all. And would it be too much for me to paint the house and fill up that 6-foot deep ditch in the front yard? The whole neighborhood is just annoyed.
c. A coal-fired electricity plant dumps its leftover hot water into the nearby lake, killing the naturally occurring fish. Thousands of homes line the banks of the lake.
d. A coal-fired electricity plant dumps its leftover hot water into the nearby river, killing the naturally occurring fish downstream. There is one large fishery one-mile downstream affected by this. After that, the water cools enough so it’s not a problem.