Question

Q: Your task is to propose a policy initiative to reduce urban runoff, using the assignment of property rights according to the Coase Theorem. Assume that the major polluters are parking lots and the major party affected are recreational parks around the city. Describe your proposal in detail. Make sure to include the following:

1) Who should be assigned property rights?

2) How these rights are to be defined and distributed?

3) How should a price be determined?

Answer 1

In our proposal we can say that under coase thoerem it does not matter who is assigned the property rights the agents will find an efficient solution on their own.

Suppose we give all the rights to parking lots then parks can negotiate with them for some money to reduce the level of pollution. Hence, it is possible for parks to reduce the level of pollution.

In the other case when parks have the right, then parking lots can pay some money for some level of pollution. Thus, now as well they arrive at an efficient solution.

Prices can be determined by pigouvian taxation, command and control and cap and trade. Among these Cap and trade is the best because it have less govt restriction on the part of pollution.