Ronald Coase "RIP"In the examples using Coase's theory it makes complete sense to allocate property rights to one of the affected parties and the market will develop a bargaining plan that will internalize the externality. But what about in a case where the polluter company pays the affected party and makes them sign a waiver that they are free and clear of any other suits or actions brought against them, but the consequences are far more greater than what was paid? e.g. in Erin Brockovich
Robb,I think the situation might apply in all cases... For example in the next post, once the compensation was paid, the biker gang agreed to not come back. The residents agreed to not complain further about turbine noise. So, the affected party has to make an informed judgement as to whether the compensation is accurate before agreeing to the deal. If there is uncertainty about true damages (e.g. chemical damages to health), you want the legal agreement to give you an out or you don't want to sign. This comes up a lot with class action lawsuits... participants who sign up to be a part of the class typically forfeit the ability to sue later for additional damages.
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