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Coase Theorem II: The nperson case

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Barriers to bargaining as transaction costs. ... N-person bargains and 'hold outs' Recall the holdout problem in the land assembly case ... – PowerPoint PPT presentation

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Title: Coase Theorem II: The nperson case


1
Coase Theorem II The n-person case
  • F.H. Buckley
  • Sciences Po
  • fbuckley_at_gmu.edu
  • Goetz 35-47
  • Goetz 49-75 to follow

2
Coase Theorem II The n-person case
  • Recall that next Thursday
  • is our double day
  • Goetz 75-95, 99-102
  • Goetz 149-53,
  • Buckley 38-50, 136-40
  • Goetz 159-74
  • Delete paragraph beginning As Exhibit 4.5 in
    Goetz p. 162

3
The Coase Theorem
The Problem of Social Cost, 3 J. Law Econ. 1
(1960)
Legal rules do not affect the allocation of
resources where transaction costs are zero but
the interesting case is where transaction costs
are high
4
The Corollary to Coase
  • Legal rules are not irrelevant, but may affect
    the allocation of resources where there are
    barriers to bargaining
  • Barriers to bargaining as transaction costs.

5
The Corollary to Coase
  • Legal rules are not irrelevant, but may dictate
    results, where there are barriers to bargaing
  • Barriers to bargaining as transaction costs.
  • So what are examples of transaction costs?

6
Transaction CostsN-person bargains and hold
outs
Recall the holdout problem in the land assembly
case
7
Boomer v. Atlantic CementGoetz p. 35
  • An example of high transaction costs
  • What is the difference between an injunction and
    damages?

8
Boomer v. Atlantic CementHigh Transaction Costs
  • What possible outcomes are canvassed in this
    case?

9
Boomer v. Atlantic CementHigh Transaction Costs
  • What possible outcomes are canvassed in this
    case?
  • No remedy no injunction, no damages
  • Injunction
  • No injunction but damages
  • Injunction and locus poenitentiae (dissent)
  • Injunction unless damages paid (majority)

10
Does the legal rule change the result in Boomer?
  • Suppose the value of the factory to Atlantic
    Cement is 20M. Plaintiff Smith suffers 100
    damages and obtains an injunction. Describe the
    bargaining.

11
Calabresi and Melmed85 Harv.L.Rev. 1089 (1972)
  • Property rules protect rights through
    injunctive relief or specific performance
  • Liability rules (damages) dont offer property
    protection

12
Is Coasian bargaining feasible here?
  • How many plaintiffs are there?
  • Does the difference between damages and
    injunctive relief matter? Is a balancing test
    which mimics the market more efficient than
    injunctive relief?

13
Bomber v. Particular GypsumGoetz p. 37
Lot 38 Particular Gypsum
Lot 39
Bomber Property
14
Damages
  • Damages to homeowners 1,000 each (100,000 if
    a class action).
  • Cost to Particular of moving 12,437,000
  • What result under Boomer?

15
Damages
  • Damages to homeowners 1,000 each (100,000 if
    a class action).
  • Cost to Particular of moving 12,437,000
  • What result under Boomer?
  • Just when does one have a large disparity in
    economic consequences?

16
Damages
  • Damages to homeowners 1,000 each (100,000).
  • Cost to Particular of moving 12,437,000
  • What result under Boomer?
  • What result if Bomber could get an injunction? Is
    there a hold out problem?

17
Damages
  • What result if Particular owned all of Lot 39?
  • Does this provide a way to determine whether an
    injunction should lie?

18
Damages
  • What result if Particular owned all of Lot 39?
  • Does this provide a way to determine whether an
    injunction should lie?
  • Internalizing the externality

19
Weingarten v. Northgate
  • What was the basis for Weingartens claim?

20
Weingarten v. Northgate
  • What was the basis for Weingartens claim?
  • Weingarten shall have the right to obtain an
    injunction specifically enforcing such rights and
    interests without the necessity of proving
    inadequacy of legal remedies or irreparable
    harm.
  • Could the parties stipulate to invoke C.C. art.
    1927? Why limit freedom of contract?

21
Weingarten v. Northgate
  • Why was Weingarten suing?
  • It is dubious that devastation of the building
    is in Weingartens real interest.

22
Coming to the Nuisance
  • What if the polluter gets there first and the
    housing development is created afterwards?
  • When the homeowners bought their houses, was the
    pollution already reflected in the purchase
    prices?

23
Coming to the Nuisance
  • What if Particular had gotten there first and the
    housing development was created afterwards?
  • When the homeowners bought their houses, was the
    pollution already reflected in the purchase
    prices?
  • Would this amount to a windfall for the
    homeowners? Or would the remedy be capitalized in
    the price of the house?

24
Should we therefore ignore distributional issues?
  • But then how would we decide these cases from an
    efficiency perspective?

25
What do these rules do to the incentives of the
parties to move to undeveloped land?
  • Suppose there is a come to the nuisance
    defense. Would this result in a race between
    developers and factory owners to get there first?

26
What do these rules do to the incentives of the
parties to move to undeveloped land?
  • Suppose there is a come to the nuisance
    defense. Would this result in a race between
    developers and factory owners to get there first?
  • Suppose there isnt such a defense the case of
    the pollution arbitrageur

27
Spur v. Del WebbGoetz p. 41
28
Spur v. Del Webb
29
Can you state the rule in the case?
  • Del Webb came to the nuisancebut got an
    injunction. Why?

30
Can you state the rule in the case?
  • Del Webb came to the nuisancebut got an
    injunction. Why?
  • A novel twist The victim has to compensate the
    polluter

31
Can you state the rule in the case?
  • Del Webb came to the nuisancebut got an
    injunction. Why?
  • A novel twist The victim has to compensate the
    polluter
  • Suppose that Del Webb sued before it had begun
    development?

32
Coming to the nuisanceWhat happens when polluter
gets there first
  • Possibility 1 Doesnt affect victims
    remediescan still get injunction or damages
  • Possibility 2 No remedy for victim (result in
    Spur had lots not been sold to homeowners)
  • Spur Injunction coupled with compensation for
    polluters moving expenses.

33
From a Coasian perspective
  • Does it matter?
  • If Del Webb had not sold lots, it could have
    bought the ranch
  • But it could have done this even after selling
    the lots.

34
Does the difficulty in measuring pollution costs
argue for a regulatory solution?
  • The rise of environmental regulatory agencies
  • Should one distinguish between kinds of
    pollution?

35
Sprecher v. Adamson
  • How does this case differ from the cases we saw
    involving pollution?

36
Sprecher v. Adamson
  • How does this case differ from the cases we saw
    involving pollution?
  • Suppose the problem could have been avoided had
    Adamson spent 10,000, and that this would have
    avoided a cost of 100,000.

37
Sprecher v. Adamson
  • How does this case differ from the cases we saw
    involving pollution?
  • Suppose the problem could have been avoided had
    Adamson spent 10,000, and that this would have
    avoided a cost of 100,000.
  • Suppose that either Sprecher or Adamson could
    have cured the problem with the same expense.

38
The misfeasance-nonfeasance distinction
  • Does it does on any economic logic?

39
The misfeasance-nonfeasance distinction
  • Does it does on any economic logic?
  • Suppose the land had been unoccupied. What might
    this do to incentives to buy it?

40
The misfeasance-nonfeasance distinction
  • Does it does on any economic logic?
  • Suppose the land had been unoccupied. What might
    this do to incentives to buy it?
  • What about a duty to rescue?
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