Question

would the coarse theorem work in reality and what is a real world example?

Answer 1

Coase theorem argue that market would be result in efficient allocation if there is property right market with no transaction for irrespective of initial endowment.Course theorem has two major disadvantage when it come to practical application. first transaction cost and second one is the well defined property rights. In real world lots of transaction cost involved in growing bargaining meeting and negotiation. This transaction cost also include information cost need to be incurred for compiling all the cost related information. Most of the complicated cases there is ambiguity in the property right. Therefore beforehand undefined property right fails to to initiate the negotiation. There are also problem with equal bargaining power as market seems coercive. Taking a real world example of admission discharge in the local water bodies by pharmaceutical industry. Which industry has big giant therefore higher bargaining power and coercive in nature. So negotiation is hampered as local population has low ability to bargain. Also there is is actually MS measurement of actual cost incurred by the the local population due to pollutant water and what benefit the company has without emission filter. Combining this complete structure of society without market intervention it seems very difficult to provide some optimal solution do there will be well defined property right market and clearly stated property rights.