Question

For each of the following situations, is the Coase Theorem applicable? Why or why not?

a. A farmer who grows organic corn is at risk of having his crop contaminated by genetically modified corn grown by his neighbors.

b. In Silveiras, Brazil, queen ants are regarded as a delicacy, but recently the ant haul has been dwindling because of pesticides used on eucalyptus trees that are planted to pro-duce cellulose for paper and other products [Barrionuevo and Domit, 2011].

c. Following a military coup in Madagascar, a weak president was installed who was un-able to stop the selling of Rosewood trees to China that were illegally cut down from the national parks.

d. Users of the Internet generally incur a zero incremental cost for transmitting information. As a consequence, congestion occurs, and users are frustrated by delays.

Answer 1

a.    It is very likely that the farmer could negotiate with the neighbors, provided property rights are clearly defined. The Coase Theorem is therefore applicable.

 

b.   It is unlikely that negotiation could result in an efficient outcome in this case. It is likely that there are a great number of farmers involved in both harvesting ants and growing trees, making negotiation very difficult.

 

c.    Property rights are not being enforced, making negotiation through the Coase Theorem impossible.

 

d.   There are too many people involved for private negotiation.