AEM Lect 29 Information and Porter 110310

AEM Lect 29 - The Coase Theorem Restated Assume a world in which some producers or consumers are subject to externalities generated by other

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The Coase Theorem Restated Assume a world in which some producers or consumers are subject to externalities generated by other producers or consumers. Further, assume (1) everyone has perfect information, (2) consumers and producers are price-takers, (3) there is a costless court system for enforcing agreements, (4) producers maximize profits and consumers maximize utility, (5) there are no income or wealth effects, and (6) there are no transaction costs. In this case the initial assignment of property rights regarding externalities does not matter for efficiency. If any of these conditions does ot hold the initial assignment does matter not hold, the initial assignment does matter. essons from Coase 1. Public intervention may not be desirable or necessary. 2. World is more complex: need to look more closely at institutions Lessons from Coase and arrangements. 3. Property rights are instrumental to society and are a factor of production. 4. Transactions costs are due to limited information. Therefore an informational role for government.
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Information strategies, particularly ecolabeling, have been used in natural resource settings for some time, affecting consumer decisions when they have a choice. – Dolphin-safe tuna, – Forest certification programs. Similarly, information allowing self-protection from risks has been utilized for some time. – Naturally occurring or risks: radon in homes, sun tan lotion. dividual human caused: second hand smoke water quality in private – Individual, human caused: second hand smoke, water quality in private wells. Public disclosure of pollution has appeared as a new instrument aimed at reducing industrial pollution, sometimes characterized as the “third wave” of environmental regulation after command-and- control (first wave) and market-based strategies (second wave). (Tietenberg, 1998)
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This note was uploaded on 12/20/2010 for the course AEM 25 at Cornell University (Engineering School).

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AEM Lect 29 - The Coase Theorem Restated Assume a world in which some producers or consumers are subject to externalities generated by other

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