Suppose an individual loves to garden. She uses pesticides that drift across her neighbor’s yard. The gardener values the use of pesticides at $1,500. The neighbor values clean air at $2,000.

a. What does the Coase theorem suggest will take place if the gardener has the right to use pesticides freely?

b. What does the Coase theorem suggest will take place if the neighbor has the right to clean air?

c. Does the solution to the problem above depend on the distribution of property rights? That is, does it depend on who has the right to pollute or live pollution free?

d. The Coase theorem suggests that private parties can solve the problem of externalities on their own if they can bargain without cost. What is the cost of bargaining that would eliminate the ability for a private solution?