Question

Which of the following requires the most information to policymakers to be a least-cost solution to optimal pollution control?

a. emissions charges

b. command and control policies

c. pollution permits

d. Coasean bargaining

Answer 1

Coasean bargaining

The Coase theorem states that the most efficient solution to resolving interdependent uses of the environment, including pollution cases, is a bargaining process among relevant property holders. If property rights are given to polluters, victims can pay them not to pollute, creating a market-like solution akin to a scheme for payments for ecosystem services. Alternatively, if property rights are given to the victims, the polluters may compensate the victim or buy the right to pollute. Thus, the cost of the negotiated outcome is shared between the parties without any external intervention. If transaction costs are minimal, the resulting allocation of resources will be efficient (that is, the resource will be dedicated to its highest valued use) regardless of the initial allocation of property rights.