Thursday, September 8, 2011

the Coase Theorem in action

Here at the WSJ

Here at the Independent


Aaron S said...

I'm not entirely convinved that the solution found in "Here at the Independant" was the optimal choice.
I understand that it worked the way Coase said it should, but I don't beleive that this is a permanent solution.
The townspeople were adequelty compensated for the cost of moving, but now there is no incentive for the power plant to mantain that land. It was a one time cost that may sound like alot of money, but to a power plant its not that high, especially since they intend to develop the site and expand their output. The profit they'll gain from the expanded plant would probably exceed the $20 million they had to initially pay.

Adam Trevisan said...

I'm sure that the power company will make up the cost of $20 million (through not being sued and being able to expand) or else it would not be an economically feasible plan to buy the town.
However the power plant would have the incentive to limit pollution in order that the air pollution does not cause problems with the surrounding area (i.e. the school) and cause law suits. Plus high levels of pollution would cause health problems for the workers, which would cause more problems for the plant. Also, the power plant would still want to stay within the EPA's air quality standards. The plant has invested much money to reduce plant emissions, so they would have the incentive to use the technologies that they paid so much for.