In northern Wisconsin, dairy farmers who grow corn to feed to their dairy cows often spread the cows" manure on the confields as fertilizer. Farmers store the manure in a pit through the winter so they can spread it on the cornfields in the spring. The more manure the farmers store in the fall, the better they'll be able to fertilize the comfields, but this comes at a cost: the more full the manure pit, the greater the risk that snowmelt or large rainstorms will cause manure to run off onto neighboring land, rivers, or lakes. First, suppose the problem was just the risk of manure running off onto the next farm and annoying the neighboring farmer due to the smell. Assume the problem only affects the two farmers, who are friendly with one another. (a) Does the Coase Theorem predict farmers will store more than, less than, or the efficient amount of manure? Why? (b) Are transaction costs likely to be high or low in this setting? Given that, is injunctive relief or a damages rule likely to be more efficient? Why? Next, consider the problem of manure running off into nearby bodies of water, poisoning fish and potentially contaminating the drinking water of the entire community. (c) Are transaction costs likely to be high or low? Given that, is injunctive relief or a damages rule likely to be more efficient? Why? (d) Suppose the county decides to pass a new regulation limiting the amount of manure that can be stored to minimize this risk. A farmer claims this will make it far more costly to run his farm. Under what theory could he try to seek compensation?
In northern Wisconsin, dairy farmers who grow corn to feed to their dairy cows often spread the cows" manure on the confields as fertilizer. Farmers store the manure in a pit through the winter so they can spread it on the cornfields in the spring. The more manure the farmers store in the fall, the better they'll be able to fertilize the comfields, but this comes at a cost: the more full the manure pit, the greater the risk that snowmelt or large rainstorms will cause manure to run off onto neighboring land, rivers, or lakes. First, suppose the problem was just the risk of manure running off onto the next farm and annoying the neighboring farmer due to the smell. Assume the problem only affects the two farmers, who are friendly with one another. (a) Does the Coase Theorem predict farmers will store more than, less than, or the efficient amount of manure? Why? (b) Are transaction costs likely to be high or low in this setting? Given that, is injunctive relief or a damages rule likely to be more efficient? Why? Next, consider the problem of manure running off into nearby bodies of water, poisoning fish and potentially contaminating the drinking water of the entire community. (c) Are transaction costs likely to be high or low? Given that, is injunctive relief or a damages rule likely to be more efficient? Why? (d) Suppose the county decides to pass a new regulation limiting the amount of manure that can be stored to minimize this risk. A farmer claims this will make it far more costly to run his farm. Under what theory could he try to seek compensation?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In northern Wisconsin, dairy farmers who grow corn to feed to their dairy cows often spread the cows'
manure on the confields as fertilizer. Farmers store the manure in a pit through the winter so they can
spread it on the cornfields in the spring. The more manure the farmers store in the fall, the better
they'll be able to fertilize the comfields, but this comes at a cost: the more full the manure pit, the
greater the risk that snowmelt or large rainstorms will cause manure to run off onto neighboring land,
rivers, or lakes.
First, suppose the problem was just the risk of manure running off onto the next farm and annoying the
neighboring farmer due to the smell. Assume the problem only affects the two farmers, who are
friendly with one another.
(a) Does the Coase Theorem predict farmers will store more than, less than, or the efficient amount
of manure? Why?
(b) Are transaction costs likely to be high or low in this setting? Given that, is injunctive relief or a
damages rule likely to be more efficient? Why?
Next, consider the problem of manure running off into nearby bodies of water, poisoning fish and
potentially contaminating the drinking water of the entire community.
(c) Are transaction costs likely to be high or low? Given that, is injunctive relief or a damages rule
likely to be more efficient? Why?
(d) Suppose the county decides to pass a new regulation limiting the amount of manure that can be
stored to minimize this risk. A farmer claims this will make it far more costly to run his farm.
Under what theory could he try to seek compensation?
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