FARE 1040 Chapter Notes - Chapter Lab: Relate, Perfect Competition, Contract Curve
21 Apr 2016
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Coase-notes on the problem of social cost: the coase theorem. But the law merely determines the person with whom it in necessary to make a contract to obtain the use of a cave. Proposition can be applied to the right to emit electrical radiations/generate smoke pollution. Delimination of rights is an essential prelude to market transactions. Ultimate result to maximize value or production is independent of legal decision. 2 points above are essence of coase theorem. Stigler defines coase theorem: under perfect competition private and social costs will be equal . Samuelson argued back that from any point off the contract curve there exists a movement toward which it would be beneficial to both individuals. There is the unwillingness to initiate negotiations leading to an exchange because of the possibility that one may end up worse off than they were before. The existence of indeterminacy does not imply that the result is non- optimal: the coase theorem and rents.
