ECON 367 Lecture Notes - Lecture 11: Productive Efficiency, Allocative Efficiency, Pareto Efficiency
Document Summary
Econ 367: economic analysis of law (lecture 11) Two implicit assumptions for coase: no transaction costs: net benefit of transfers must be better than the cost of the transaction. In the movie, the castle, there are high transaction costs. All homeowners must cooperate; there is a holdout problem (free rider) Solution = compulsory acquisition (also called expropriation) Bilateral monopoly problems create a strong argument for expropriation: no wealth effect: whoever gets the property gets something of value; the other does not. Granting a right doesn"t affect efficiency, but it affects your wealth. Ex. (cid:498)how do i know you didn"t steal the car i am trying to buy from you? (cid:499) Reasons exchanges fail: property rights not clearly defined or enforced, no cooperative surplus. If the right is worth less for the buyer than the seller, no sale: high transaction costs (very important, hence the repetition) The new airport would have created lots of social welfare, so it was a poor.
