Question

Suppose that the nearby campers impose a cost of $500 on you and your roommate. If they had to move to a campsite where they could make as much noise as they wished, they would incur a cost of $200. Think of this as the cost of having to physically pack up their stuff and hike to another site. If they stayed and had to be quiet and not disturb you, they would incur a cost of $300. The park rules specify that whoever arrived first has a right to an undisturbed camping spot. Which of the following outcomes would be consistent with the Coase theorem?
a. You would pay them $250 to move.
b. They would pay you $180 to stay where they are.
c. They would move, as the cost to keep quiet would be more than the cost to move.
d. They would pay you $600 to stay where they are.

Answer 1

Answer:

a. You would pay them $250 to move.

Explanation:

The Coase Theory states that in order to solve problems, you must choose the most efficient economic solution regardless of who has property or use rights.

if the campers stay, you will lose $500 (in satisfaction)

cost of moving them is $200

cost of staying and being quiet is $300

it is cheaper to pay them between $200 and $299 so that they move somewhere else