Summary
Coase Text - Summary
- Course
- Institution
UU Introduction to Economics and Business Economics - Summary for Coase Text 'The Problem of Social Cost' (1960)
[Show more]
Seller
Follow
bjornlabrie
Reviews received
Content preview
Summary – The Problem of Social Cost – Coase:The Problem of Social Cost (1960). Ronald H. Coase.
Certain firms’ actions have harmful effects on other firms externalities.
Divergence between private and social costs (product) of firms most economists say that
the owner of a firm is said to be liable / should pay taxes to compensate for damage Coase
does not agree with this both parties should be treated equally (A harms B, but B also has
to be checked = reciprocal nature) comparing the values of what is obtained and what is
sacrificed comparing the situations of firms A and B and exploring what can be done to
solve the problem, because avoiding harm for B causes harm for A.
There is a difference between total and marginal costs pricing systems with and without
liability for the owner of the damaging firm when a damaging firm has full liability,
marginal costs will be zero it is necessary to know whether the damaging business is liable
or not for the damage caused, since without the establishment there can be no market
transactions to transfer and recombine them ultimate result is independent of the legal
position if the pricing system is costless.
In situations of firms damaging other firms, two manufacturers should make a mutually
satisfactory bargain many situations can be imagined and the costs and benefits can be
calculated the bargain should be that both the damaging and damaged firm will have the
highest possible benefit, or the lowest possible costs agreements like this will alter the
distribution of income and wealth between the firms.
The allocation of resources will be the same in the case of no liability as it was when the
damaging firm was liable for the damage caused the allocation is optimal assuming that
there is a perfect market.
In some cases, on marginal principles both parties are responsible and both should be
forced to include a loss amenity, because both parties cause damage both parties should
take the harmful effect into account in deciding on their course of action.
Coase’s solution it is necessary to weigh the marginal benefits with the associated
marginal costs.
Solutions to Social Cost if property rights are assigned and enforced internalising
externalities (with zero transaction costs) the decision of the court concerning damage
liability would have no effect on resource allocation.
Under perfect competition, social costs are equal to private costs. If the pricing system /
transaction costs are above zero, it is better for the damaged and damaging firm to get
together and come up with a bargain without involving the government and the legal system
no litigation.
Coase Theorem when information and transaction costs are low, the market will produce a
solution to the problem of harmful externalities without regard to the liability the private
firms are able to agree on/settle a beneficial and socially desirable solution as long as there
are no costs that come along in the process.
Law and Economics a discipline that combines economic and legal concerns.
Economic institutions are social devices for reducing transaction costs (firms minimise costs)
returns to scale more output means lower (variable) costs.
Private deals between agents / firms could accommodate market and government failures
governmental regulation will not (always) give better results than leaving the problem to be
solved by the market.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller bjornlabrie. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.24. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75057 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now