Eco 11-14 - Econ Notes 11/14/07 1. Property Rights and...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ Notes 11/14/07 1. Property Rights and Transaction Costs a. Price mechanism is not free i. Therefore information is costly b. Coase i. You have 2 pieces of land 1. One farmed by a farmer 2. The other worked by a cattle rancher Number of Steers Total Crop Damage Marginal Cost to Farmer 1 1 1 2 3 2 3 6 3 4 10 4 ii. Assume: 1. A fence costs $9 a. Crops= $1 iii. Consider two states of the world 1. Cattle Rancher is liable for all damage 2. CR is not liable for damage. iv. In state 1: 1. If the CR increases steers a. From 1 2 i. He must pay the farmer $2 for the damage b. From 2 3 i. He must pay $3 more c. From 3 4 i. He needs to pay the farmer $4 2. Assume profit maximizing- CR wants 3 steers b/c price of meat is sufficiently high v. In state 2: 1. If the CR increases steers a. From 1 2 i. The farmer would be willing to bribe the CR $2 not to increase his cows b. From 2 3 i. The farmer could bribe the CR $3 c. From 3 4 i. The farmer could bribe the CR up to $4 2. The bribes of the farmer are opportunity costs of using the land
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/07/2008 for the course ECO 2302 taught by Professor Smith during the Spring '08 term at University of Texas at Dallas, Richardson.

Page1 / 3

Eco 11-14 - Econ Notes 11/14/07 1. Property Rights and...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online