owns a dog whose barking annoys 's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to and that Jane bears a cost of $500 from the barking. Assuming has the legal right to keep the dog, a possible private solution to this problem is that
a. There is no private solution that would improve this situation.
b. Jane pays $650 to get rid
of the dog.
c. Jane pays $800 to get rid of the dog.
d. pays Jane $600 for her
inconvenience.
-Can private solutions always be reached with the Coase Theroem?
-But in this case has the legal rights, so does it mean he could chose not to pay Jane any money? so the answer would be A?
I agree, I too would go with a)
There is no private solution that would improve this situation. The Coase Theorem states that if transaction costs are low, private solutions can be reached. However, in this case, has the legal right to keep the dog, so there is no incentive for him to pay Jane any money. Therefore, there is no private solution that would improve this situation.
Yes, the correct answer is option a) There is no private solution that would improve this situation. Since has the legal right to keep the dog, he is not obligated to pay Jane any money to address her annoyance. In this case, a private agreement between and Jane may not be possible, and the situation may require intervention from a third party or an external authority.
Regarding your second question, the Coase Theorem suggests that if property rights are well-defined, transaction costs are negligible, and parties can negotiate freely, then a private solution could be reached. However, in certain cases, private solutions may not be feasible, as in this scenario where has the legal rights and may choose not to pay Jane any compensation.
The possible private solution to this problem is option b) Jane pays $650 to get rid of the dog. This is because the Coase Theorem suggests that in a situation with well-defined property rights and no transaction costs, the parties involved can negotiate and reach an efficient outcome regardless of the initial allocation of rights. In this case, has the legal right to keep the dog, but Jane values the removal of the barking more than values owning the dog. Therefore, if Jane is willing to pay $650 (which is less than the total value of benefits to both parties), they can reach a mutually beneficial agreement. can be compensated for the inconvenience of giving up the dog, and Jane can avoid the annoyance caused by the barking.
To answer your question about private solutions and the Coase Theorem, private solutions can generally be reached with the Coase Theorem, but it depends on the specific circumstances and preferences of the parties involved. The Coase Theorem states that if property rights are clearly defined and there are no transaction costs, then the parties can negotiate and reach an efficient outcome by internalizing the externalities.
In this case, while has the legal rights, it doesn't necessarily mean he can choose not to pay Jane any money. The Coase Theorem suggests that in the absence of transaction costs, the parties can negotiate and reach an efficient outcome that maximizes the joint gains from trade. If Jane values the removal of the barking more than $650, she would be willing to pay that amount, even if he has legal rights. It is in the interest of both parties to find a mutually beneficial solution.