A social cost is the sum of the private costs resulting from a transaction and the costs imposed on the consumers as a consequence of being exposed to the Master Data Service transaction for which they are not compensated or charged. Private costs are the directs costs of the producer to produce the good or service. Social cost includes these private costs, and in additional the costs which are external costs associated with the production of the good which are not dealt with by the free market.
The minimum evidence required to suggest some level of pollution is inefficient is to see whether it can avoid the more serious harm. The real issue to be decided is: is the value of pollution itself is greater or less than the value of the existence of pollution. Once we figure out which one is more valuable currently, then, we can make the decision of which one of them is bad.
In this article, Coase uses the example of farmer and cattle-raiser to explain his idea. It is clear that cattle-raiser is liable for the damage on crops and should pay for this based on traditional liability rules. As a result, it would lead the farmer to increase his planting if a cattle-raiser came to occupy the neighboring property. However, based on the model designed by Coase, the aim of the farmer would be to induce the cattle-raiser to make a payment in return for an agreement to leave the land uncultivated. Since this payment is greater than the cost of fencing the land and is willingly accepted by cattle-raiser. In addition, such an agreement would not affect the allocation of resources but would merely alter the distribution of income and wealth as between the cattle-raiser and the farmer. Then, the issue for farmer is no longer to avoid the damage from cattle-raiser but becomes how to make as much money as possible from cattle-raiser in this bargain. As a result, the value of the meat production would be maximized, but the production of plant crops would be ceased, and the supply of crops decreases. However, through the traditional liability rules, the supply for both should remain the same. The idea of “polluter pays” do indeed solve the damage issue, but it decreases the market supply of certain good by ceasing its production. Therefore, it is not a efficient outcome.
Coase finds that although a different belief on the part of the framer about the size of the herd that the cattle-riser would maintain in the absence of payments from him may affect the total payment he can be induced to pay, it is not true that this different belief would have any effect on the size of the herd that the cattle-raiser will actually keep. This will be the same as it would be if the cattle-raiser had to pay for damage caused by his cattle, since a receipt foregone of a given amount is the equivalent of a payment of the same amount. Therefore, if the increase in the value of production in cattle-raising through increasing the size of the herd is greater than the additional costs that have to be incurred, the size of the herd will still be increased. As a result, of an agreement with the cattle-raiser, planting would subsequently be abandoned, and land will remain uncultivated. The economic outcome does not change even doing away with traditional liability rule. It is necessary to know whether the damaging business is liable or not for damage caused since without the establishment of the initial delimitation of right there can be no market transactions to transfer and recombine them.
At the end of section four, he says it is necessary to know whether the damaging business is liable or not for damage caused since without the establishment of this initial delimitation of rights there can be no market transactions to transfer and recombine them. But the ultimate result which maximizes the value of production is independent of the legal position if the pricing system is assumed to work without cost. Therefore, the liability institutions are not that necessary in this case.
I choose the first case of Sturges v. Bridgman. Noise and vibrations from a confectioner’s machines disturbed his neighbor, the doctor’s work of consulting his patients. The court’s decision established that the doctor had the right to prevent the confectioner from using his machinery. The doctor would have been willing to waive his right and allow the machinery to continue in operation if the confectioner would have paid him a sum of money which was greater than the loss of in-come which he would suffer from having to move to a costlier or less convenient location. The solution of the problem depends essentially on whether the continued use of the machinery add more to the confectioner’s income than it subtracts from the doctor. It is correct. However, confectioner owned two mortars and pestles in connection with his business, and one had been in operation in the same position for 60 years and the other for more than 26 years. All these machines caused the doctor no harm until the doctor built a consulting room. That meant the doctor occupied neighboring premises, and therefore, confectioner should win the case, and do not have to pay anything to the doctor. Then, confectioner can continue operating his machinery and the doctor would have had to pay the confectioner to induce him to stop using the machinery instead. That’s something that the court did not think about. With costless market transactions, the decision of the courts concerning liability for damage would be without effect on the allocation of resources.
“Sustainability” is like the social cost. For example, we believe that saving fresh water can maintain sustainability, and we charge pollution fees from industries or companies that contaminate fresh water. We tend to believe that we save the water and make our planet more sustainable. However, the truth is not what we expected. Industries and companies are willing to pay those fees in order to avoid the further judgement from society, and that money is trivial compared with their annual income. Therefore, this action does not stop the water pollution fundamentally. Therefore, the goal of sustainability does not come true at all, and is still ideological.
From the court case, the reasoning employed by the courts in determining legal rights will often seem strange to an economist because many of the factors on which the decision turns are irrelevant. Because of this, situations which are, from an economic point of view, identical will be treated differently by the courts. From Coase’s perspective, he believes that to determine which one is worthier and more valuable than another is a good method to make the decision. Of course, the court won’t consider it while making judgement. That’s why the doctor can win the case. To think like an economist, the economic problem in all cases of harmful effects is how to maximize the value of production. If ideas from entrepreneurs are indeed more valuable and can provide more profits than the traditional ways of life. It is reasonable to sacrifice the tradition in order to accomplish these ideas. In this case, entrepreneurs do destroy the well-being of tradition for good reasons. However, if ideas are not as valuable as we expected, or they have the same value as the traditional ones. The destruction becomes unnecessary and meaningless. We should protect the tradition and therefore ideas do not destroy it. Therefore, the final decision depends on the demand of current society. If the health level remains high in society, the value of traditional confectioners is greater than the doctor. Instead, if candies are proved to be horrible for human health, then the doctor has more value and plays the role as promoting social progress.
People involved in all of these events are unaware of which option and choice is more valuable and profitable. Therefore, they randomly make the decision which they believe is true and correct. According to the paper, the ignorance of this will make the decisions or actual policies problematic or doubtable.
1.Social costs become more severe in densely populated cities due to the increasing production results from the high demand by large population. 2.The government is a super-firm since it is able to influence the use of factors of production by administrative decision. The government is able to avoid the market altogether and can conscript or seize property. Therefore, government can decree that factors of production should only be used in such-and-such a way. This authoritarian methods save a lot of troubles. Furthermore, the government has at its disposal the police and the other law enforcement agencies to make sure that its regulations are carried out. It is necessary to understand that the ultimate goal for Coasean bargains is to maximize the value of production by determining the most valuable option. Government definitely play a role to regulate production in an objective way. However, the activities from government are not costless and they need more labors in order to deal with increasing issues result from large population. Therefore, the expansion of government took place to accomplish the goal of Coasean bargains. They are correlated.
3.The issue of social costs is getting less severe in densely populated cities due to the disappearance of transaction costs. If rights are assigned and there are not transaction costs, then the externalities as a large part of social costs will be internalized. People will renegotiate the property rights since there are not transaction costs for doing so. 4.In this case, government regulation of market becomes unnecessary and useless since they have to respect the negotiation results from citizens. Therefore, it is reasonable for them to shrink.
No. Coase states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining of resources is impossible to reallocate regardless of the initial allocation of property. The meaning of the zero transaction cost condition is that there are no impediments to bargaining. Since any inefficient allocation leaves unexploited contractual opportunities, the allocation cannot be a contractual equilibrium. Even in a world without transaction costs, the parties will negotiate some sorts of side payment or something.
Coase believes that an alternative form of economic organization which could achieve the same result at less cost than would be incurred by using the market would enable the value or production to be raised. And the idea of firm represents such an alternative to organizing production through market transactions. It occurs when individual bargains between the various cooperating factors of production are eliminated and for a market transactions is substituted an administrative decision. In effect, the firm would acquire the legal rights of all the parties and the rearrangement of activities would not follow on a rearrangement of rights by contract, but as a result of an administrative decision as to how the rights should be used. “Super-firm” represents the government. The ordinary firm is subject to checks in its operations because of the competition of other firms, which might administer the same activities at lower or higher costs. However, the government is able to avoid the market altogether, which a firm can never do.
No it doesn’t. Coase mentions courts take economic implications into account, along with other factors, in arriving at their decisions. Some court decisions survey the law in the United States regarding the legalizing of nuisances and it is apparently impartial and equal. It reminds us we should still respect these decisions. In addition, courts’ decisions of issues of social costs determine the value of production, as well in some cases. In a world in which there are costs of rearranging the rights established by the legal system, the courts, in cases relating to nuisance, are, in effect, making a decision on the economic problem and determining how resources are to be employed.
Coase blames about the nuisances and complaints from the applications of new inventions due its disturbance for normal life. I think this page covers most examples I want to say. I think the watering cart will be an opposing general evidence since it may force private cars to slow down and block the road, however, it also cleans the road and irrigates the plants nearby. I think the benefits can overlap its drawbacks. The major irony is that complainers who want the governmental regulation in the problem and risks from new inventions are also the biggest beneficiaries from these, and they seem to be unaware of this. Based on the folk-wisdom, the way to deal with these is to receive money from polluters as compensation for both physical and mental disturbances. However, those issues are not solved fundamentally, and the value of compensation is hard to define.
For U.S. Military, Americans as taxpayers support their activities. However, the military occupies the land for training, experiment, and so on. Besides, the application of new inventions will also make noise and vibration that disturb the ordinary life of citizens. The potential risks from the experiment have the possibility to cause fatal damage to the environemnt and citizens’ lives. In addition, citizens may not be compensated as they deserved, and they worry about their security that is guaranteed by the Military. Many green energy projects only pay attention to the influence of their products and results on the environment without realizing other factors related to these may cause additional pollution to the environment.
Coase accused Pigou of having a faulty view of the facts of the situations and being mistaken in his economic analysis. Take the railway and its damage to surrounding area as an example. It is not necessarily desirable that the railway should be required to compensate those who suffer damage by fires caused by railway engines. Instead, Pigou clearly thought it desirable to force the railway to pay compensation and it led him to the conclusion. Then Pigou suggested to run an additional train or make the speed faster or install smoke-preventing devices. However, Coase criticized that Pigou does not seem to have noticed that his analysis is dealing with an entirely different question. The core issue is not whether it is desirable to apply the previous actions from Pigou; the question at issue is whether it is desirable to have a system in which the railway has to compensate those who suffer damage from the fires which it causes or one in which the railway does not have to compensate them. When comparing alternative social arrangements, the proper procedure is to compare the total social product yielded by these different arrangements. The Pigovian analysis shows us that is it possible to conceive of better worlds than the one in which we live. But the problem in reality is to devise practical arrangements which will correct defects in one part of the system without causing more serious harm in other parts.
At the beginning, Pigou argues that all polluter are reliable to pay for their behavior that damaged others properties. One of Coase’s original contributions to economic thought in this paper was that such problems are reciprocal in nature. That is, to compensate the property owners is to harm the polluter. In Coase’s view, the problem is to avoid the more serious harm. Answer is not clear unless we know the value of what is obtained as well as the value of what is sacrificed to obtain it. He continued that the problem must be considered in total and at the margin; one must account for both total effects and incremental local changes. However, Pigou distinguishes between the case in which a person renders services for which he receives no payment and the case in which a person renders disservices and compensation is not given to the injured parties in his second class of divergence. The implication, for example, is that a factory owner with a smokey chimney should be given a bounty to induce him to install smoke-preventing devices while most modern economists would suggest that the owner of the factory should be taxed. These “uncharged disservices” are not “anti-social”. It is necessary to weigh the harm against the good that will result that nothing could be more “anti-social” than to oppose any action which causes any harm to anyone. A man may be liable for damage caused by smoke or unpleasant smells, without it being necessary to determine whether he owns the smoke or the smell. Given that the costs of market transactions make a rearrangement of rights impossible, unless we know the particular circumstances, we cannot say whether it is desirable or not to make the man who emits greenhouse gases responsible for the damage and owns these gases, as well.
The reason why some activities are not the subject of contracts is exactly the same as the reason why some contracts are commonly unsatisfactory; it would cost too much to put the matter right. Indeed, the two cases are really the same since the contracts are unsatisfactory because they do not cover certain activities. The exact bearing of the discussion of the first class of divergence on Pigou's main argument is difficult to discover. He shows that in some circumstances contractual relations between landlord and tenant may result in a divergence between private and social products. But he also goes on to show that Government-enforced compensation schemes and rent-controls will also produce divergences. Furthermore, he shows that, when the Government is in a similar position to a private landlord, e.g. when granting a franchise to a public utility, exactly the same difficulties arise as when private individuals are involved. As a result, Coase has been unable to discover what general conclusions about economic policy, Pigou expects us to draw from these cases. Therefore, Pigou is still ideological.
It is Coase’s belief that the failure of economists to reach correct conclusions about the treatment of harmful effects cannot be ascribed simply to a few slips in analysis. It stems from basic defects in the current approach to problems of welfare economics. What is needed is a change of approach.
The use of a factor for economists is determined by whether the gain is worth more than the loss. Coase reminds us that in devising and choosing between social arrangements we should have regard for the total effect. Furthermore, we have to take into account the costs involved in operating the carious social arrangements as well as the costs involved in moving to a new system. This is important because we have bear in mind that a change in the existing system which will lead to an improvement in some decisions may well lead to a worsening of others. Think all of these as a whole is the change in approach which Coase advocates.