Public finance Econ 4070

a Assume that the neighbours and the polluter can bargain on the level of output. In the context of Coase theorem, and with a help of a carefully labeled diagram discuss (i) a situation where the polluter holds property rights to the environment (ii) a situation where the neighbours of the polluter hold property rights to the environment. In both cases comment on the maximum and minimum sizes of respective bribes/payments and on the level of output. Note that the question does not ask you to calculate the specific amounts. You are asked for a verbal and graphical explanation (8 marks) b) With a help of a properly labelled graph discuss a tax policy that would eliminate the negative effects of the externality. (4 marks, be brief and to the point) C) Meanwhile back in the real world... Outline-the practical limitations of Coase theorem as relevant to modern developed economies. (4 marks, be brief and to the point)