Question

Imagine a scenario where the operations of a copper mining company, NOCOP, creates negative externalities on the neighbouring farming community. NOCOP dumps the waste associated with its exploration activities and the processing of the ores on the lands surrounding the pits it operates. Land contamination by the mining waste leads to reduced crop output in the farming community, among other adverse impacts. Faced with this situation, the government employs an economist who proposes a Coasian bargaining to take place between NOCOP and the farmers. The economist argues that once property rights over land resources are defined and assigned to farmers, private negotiations between NOCOP and the farmers would result in an optimal outcome. Accordingly, NOCOP would pay the farmers for the right to pollute and compensate for the loss of crop output. Write a response criticizing the claim that Coasian bargaining results in an optimal outcome within this context. In your response address and elaborate on the following two issues:

1. The specific characteristics of environmental externalities make the notion of optimal pollution problematic

2. Consider how the outcome of the Coasian bargaining would change in response to a fall in the price of copper: NOCOP would adjust by reducing its output of copper, which would lead to a fall in the associated level of pollution. Could the level of crop output of farmers adjust smoothly? Why or why not?

Answer 1

Common mining wastes are as follows:

Rock pieces(Broken)

Waste water

sludge etc.

Environmental damages can be caused by various economic production.Externality,can be positive or negative.It occurs when there is an exchange between seller and the buyer having impact on third party who is not even a part of this.Externality is the example of market failure.

for eg: If you want to go for any music concert and theun you buy a ticket for that,but what if you can listen to it from your house or your living room,that's exactly when seller and the buyer of organizing music concert will be in the profit and you become the third party.

Pollution includes in a negative externality.Some of them explains it with demand and supply.However it can created as a byproduct of material of anything manufacturing.Supply curve based an choices and demand curve based on benefits.

And the reality is externalities exists.So it makes the notion problematic.