A chemical manufacturer is located upstream from a beer brewery. When the chemical manufacturer produces its product, it drops its waste into the local stream tainting the water used to produce beer. There is a law against putting waste in the stream. If the chemical manufacturer's profits would fall by $650,000 if it didn't dump its waste, and the brewery's profits would increase by $350,000 if the firm didn't dump waste, then the Coase Theorem suggests that the brewer will pay the chemical manufacturer not to dump its waste. the chemical manufacturer will pay the brewer not to complain to the authorities. the brewer will call the police, and the chemical manufacturer will stop dumping waste. the chemical manufacturer will voluntarily stop dumping waste because it's the right thing to do. the chemical manufacturer will freely pollute, and there's nothing the brewer can do about it.
A chemical manufacturer is located upstream from a beer brewery. When the chemical manufacturer produces its product, it drops its waste into the local stream tainting the water used to produce beer. There is a law against putting waste in the stream. If the chemical manufacturer's profits would fall by $650,000 if it didn't dump its waste, and the brewery's profits would increase by $350,000 if the firm didn't dump waste, then the Coase Theorem suggests that the brewer will pay the chemical manufacturer not to dump its waste. the chemical manufacturer will pay the brewer not to complain to the authorities. the brewer will call the police, and the chemical manufacturer will stop dumping waste. the chemical manufacturer will voluntarily stop dumping waste because it's the right thing to do. the chemical manufacturer will freely pollute, and there's nothing the brewer can do about it.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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