ECO320Y5 Lecture Notes - Lecture 5: Coase Theorem, Spark Arrestor, Pareto Efficiency

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18 Nov 2016
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Illustrates importance of property rights high transaction costs. The more formal statement of the theorem coase was presented by prof. cooter: When transaction costs are zero (0), an efficient (socially optimal) use of resources results from private bargaining, regardless of the legal assignment of property rights: critical** Whatever the outcome, it will improve both people. People will spend more money to make less money: court, legislation. With the opporitunity to bargain, different legal rules: lead to the same economic outcome. Train runs through farmers field emitting sparks. Laundry install filters: leaders to optimal social surplus. Train joint social surplus optimally increases by . Laundry joint social surplus of 1,200 is optimal. To invest in a contract, used to avoid a messy situation. The converse theorem of coase is also presented by prof. cooter: When transaction costs are high enough to prevent bargaining, the efficient use of resources will depend.

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