Question

Suppose that a coal factory emits pollution into the air and that a nearby neighborhood is harmed by this pollution. It would cost the coal factory $12,500 to clean up the pollution. The neighborhood values the cleanup at $15,000. Assuming that transaction costs are low and the Coase theorem holds, for each scenario below, determine whether we would expect the pollution to be cleaned up or not.
a. If the coal factory owns the right to pollute the air:

-the coal factory will continue to pollute

- the neighborhood will negotiate to get the pollution cleaned up.

b. If the neighborhood owns the right to clean air:

-the neighborhood will require the coal factory to clean up the pollution.

-the coal factory will negotiate to get the right to pollute.

Answer 1

Answer: The right answer are: a)the neighborhood will negociate to get the pollution cleaned up. b)the neighborhood will required the coal factory to clean up the pollution