coase - The efficient level of pollution and the Coase...

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The e cient level of pollution and the Coase Theorem These notes explain how economists think about the "e cient" level of pollution, and why — under certain circumstances — the actual level of pollu- tion does not depend on who has "property rights" to the environment (the Coase Theorem). In order to determine how much pollution society should tolerate, we need a way to compare the costs and bene f ts of pollution. The social cost of pollution consists of all environmental damages (e.g. those related to health costs and reduced enjoyment from a resource) The social bene f t of pollution consists of reduced production costs (and the resulting cheaper goods). Again, we measure these costs and bene f ts in units of dollars. We can’t compare apples and oranges; a comparison requires that we use the same units of measurement for the things that are compared. The optimal level of pollution is determined where the marginal costs of emissions and the marginal bene f ts are equal. Figure 1 graphs the marginal damages of pollution (emissions), the curve MD. This curve has positive slope. The f r s
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coase - The efficient level of pollution and the Coase...

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