Quiz 2 - Coase Theorem Property Rights to Runner Baseline - same as in handout, assume the firm is currently not paying for emissions and is emitting 50 tons per year. Scenario 2: Give Property Rights to the Runner The runner has rights to supply emissions (e tons/yr): Let the runner's cost (a.k.a. damages) of emissions be: Total costs of emissions = e Marginal damage cost of emissions = 2e The firm benefits from e, creating demand: Total benefits (a.k.a. MC avoided) of emissions = 200e-2e Marginal benefits of emissions = 200-4e Hint: For many people, answering these questions will be easier if you graph the supply (MC) and demand (MB) curves. 1. What is the total windfall gain of the runner (hint: use the handout Property Rights and Coase Theorem Part 2)? 2. What is the total windfall loss of the firm (hint: uhandout Property Rights and Coase Teorem Part 2)? A 3. What is the efficient level of ark.a. e*)? Assume the firm and anner negotiated on the same price for all units trade 4. What is the efficient price of e? What are the runner's net benefits? Hint: don't forget the windfall gain. -6. What are the firm's net benefite? Uint, don't forget the windrail loss (negative net benefit). 7. What is the sum of the two parties' net benefits (a.k.a. total net benefits)? Coase Theorem: compare the solutions of the two scenarios. 8. How do the efficient levels compare (r* and e*)? You are comparing the efficient levels when the firm has the property rights in the last quiz to the efficient levels from this quiz. Hint: in the scenario where the firm has the property rights use r1* to calculate e1*, in the scenario where the runner has the property rights use e2* to calculate r2*, then compare across the scenarios (r1* and r2*; e1*and e2*). See the last page of the handout Property Rights and Coase Theorem Part 2. 9. now do the efficient prices compare? How does the sum of the two parties' net benefits compare? 10. In the scenario where the firm has the property rights, do each the parties have positive or negative no benefits? In the scenario where the runner has the property rights, do each of the parties have positive or negative net benefits? 1