ECON 367 Lecture Notes - Lecture 9: Coase Theorem, Externality, Opportunity Cost
Document Summary
There(cid:495)s a rancher (cid:523)r(cid:524) and a farmer (cid:523)f(cid:524) who have separate properties, next to each. R(cid:495)s cows are crossing into f(cid:495)s property and eating his corn (cid:523)negative externality(cid:524) other. The mb=mp of a cow is fixed at . Search & info: the opportunity cost of my time spent researching the deal. Bargaining & decisions: the opportunity cost of negotiating and coming to a deal with the other agent. Monitoring & price enforcement: if i make a deal with an agent for something, then get home and the something is not what we bargained for, this is the cost of enforcing that the contract be respected. Mpc to r (the cost of raising a cow) Msc (the two combined to represent the total cost to society) Keep producing as long as the additional benefit is greater than the additional cost. > after coase, externalities don(cid:495)t necessarily lead to inefficiency! > before coase, r would be taxed .
