Archive for the 'Coase Theorem' Category

Jan 10 2008

The Coase Theorem, clear and simple, kind of…

Environmental Economics: What is the Coase Theorem, really?

John Whitehead at Environmental Economics and I have something in common; we both struggle to clearly explain the Coase Theorem. This is a minor topic in AP and IB Economics courses, part of the Market Failure and Externalities units. Basically, the Coase Theorem presents individuals involved in a property rights dispute a market based mechanism for correcting the existence of an externality, as opposed to turning to the government or the legal system. Whitehead’s article linked here goes into a bit more depth than the typical principles text book, but clarifies some of the misconceptions and shortcomings of the basic theorem introduced in those texts.

In all likelihood, high school econ students will never need to know more than the basic version of the Coase Theorem, so this article is most useful for students (or teachers) who want to extend their understanding beyond the basic level. But while we’re on the topic, I thought I’d share my own method for illustrating Coase. This represents the basic version, but I think it illustrates the concept more clearly than the typical example from a text. I tell them a story, here it is:

When I was a kid we lived in this little yellow house outside of Minneapolis, where summers are brutally hot and humid. Our next door neighbor had a huge old oak tree in his yard with branches that spread out over our yard and provided us with shade for playing outside on hot summer days. One day, after a bad lightening storm, our neighbor became afraid that this huge oak tree might someday get struck by lightening and fall on his house, so he decided to cut it down.

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Jun 01 2007

Pot bust threatens US balance of trade with Mexico and British Columbia

The Columbus Dispatch : Pot growers hid on 2 acres of state landwacky tabaccy

Okay, so maybe my headline is a bit of a stretch… but man, how did these guys almost get away with this? Two Mexicans on two acres of land in the middle of Ohio, growing $10.5 million worth of pot!?

Officers from four agencies descended on Mackey Ford Wildlife Area on Rt. 762 in Pickaway County yesterday morning to bag more than 10,000 immature marijuana plants. The crop would have been worth an estimated $10.5 million on the street if harvested.

What’s unusual about the operation, besides its size, is that the growers were living in the woods with the plants. And they appear to have been from Mexico.

“This is common on the West Coast,” said Scott Duff, an agent with the Bureau of Criminal Identification and Investigation. “But we’ve never seen this here. It’s new territory for us.”

John Whitehead at Environmental Economics thinks there may be another example of the Coase bargaining theorem here… if only these guys weren’t off to federal prison:

Environmental Economics: Well it is public land afterall!

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