Thursday, September 5, 2013

Real world applications of the Coase Theorem

Real world applications of the Coase Theorem are tough to come by.
Here are a few that might come close:

Biker gang in Sweden paid to move out

Residents paid to accept noise from wind turbines in Oregon

Really rich people, views and redwoods in California

11 comments:

Anonymous said...
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Grayson Spittel said...

Professor Schuhmann,

From what I've understood when we were talking about the Coase Theorem, the benefit was that government intervention/regulation is unnecessary; however in the first two cases the government was responsible for stepping forward and implementing the efficient resolution. Is there a discrepancy between practice and the actual theorem? Or perhaps, in order to stay relevant, does the theorem need to be stretched to fit real-world scenarios?
-Grayson

Dr. Peter Schuhmann said...

Grayson,
Gov't is necessary to enforce the property rights, or at least threaten to enforce them. However, I think that it's accurate to say that the theorem does need to be stretched to fit the real world. Perhaps someone else can find a more accurate example?

Grayson Spittel said...

Professor,

After I did some research I found this article talking about a Durham Church taking several steps to try and reduce their noise pollution for complaining neighbors around the area, and eventually settling the issue with their neighbors out of court. This is an example of where bargaining led to little transaction cost, economic efficiency, and application of the Coase Theorem. http://www.wral.com/durham-church-neighbors-settle-noise-dispute/12586652/

Dr. Peter Schuhmann said...

Nice work Grayson. Looks like the Coase theorem to me.

Bret Bledsoe said...

Isn't the article that discusses the the trees blocking a neighbors view an example of the failure of the Coase theorem? The Von Bothmers already own the land which is causing the "degradation" of Ellison's property value and the Ellison has attempted to reach an agreement by offer to buy their property but the Von Bothmers refused. This particular case seems to be a costly one and one with quite a bit of litigation, which directly combats the assumptions of the Coase theorem.

Dr. Peter Schuhmann said...

Bret,
They ended up settling out of court:
http://online.wsj.com/article/SB10001424052702304563104576357873452996468.html

So I think it still works as a success story.

But you are correct in that the principle assumption of the theorem was violated. Negotiations were far from "free".

Melissa Pruitt said...

These three articles about real examples of the Coase theorem was shocking, especially the article about the wind turbines in Oregon. I had no idea that a company would go as far as offering a few thousand dollars to the residents to stop complaining about the noise they were/are creating. The amount of money the company is spending "paying off" each of these residents is probably nothing to the amount they would have to pay for removing the wind turbines or having to deal with Oregon's strict noise regulation.
In reality I think the Coase theorem occurs much more than we fail to acknowledge. Companies use this theorem's idea as a way to bargain with those under them to keep them quiet and to acquire more power. It's sad that many U.S. residents can be bought out of standing up for the issues they care about.

I have two questions:
Why has Oregon not enforced the noise regulation on the Caithness Energy Company?
Do you think the company will continue to pay off the residents even though they've received media coverage on it?

Celina Roach said...

What is the value of the inconvenience of noise $5000? What is the long term benefits of the windmills? I do not quite agree with the payment. Besides $5000 can never pay for the noise that they would be experiencing. I heard of the inconvenience firsthand of some people I know who live in the north of Barbados when government wanted to set up wind turbines recently.
Can the people in Oregon not be educated about the benefit of the wind energy to them as well as the country on a whole? Maybe the company can agree to use that area for a specified time. This might make the residents more accepting of the project.

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najah adibah said...

Can someone explain to me the transaction costs and the property rights regarding the issue of the wind turbine Oregon? Also, can someone explain to me how does both parties ( wind turbine factory and residents) come to the agreement to negotiate with each other?
And, how does this agreement solve the problem of externalities? Thank you in advanced.