ECN 001A Lecture Notes - Lecture 17: Externality, Netflix, Common-Pool Resource
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ECN 001A Full Course Notes
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Coarse theorem: private parties can solve the externalities problem if the private parties can costlessly bargain, costless bargaining is when dick and jane can bargain without third party"s help (like lawyer), which involves a cost. Socially optimal maximizing well-being of dick and jane: Case 1: dick has a legal right to keep spot. However, benefit to dick of having spot is , and the cost for jane is. Solution: get rid of the dog when jane paid dick . Case 2: dick has a legal right to keep spot. The benefit to dick of having spot is , and the cost for jane is . Case 3: jane has the right to quiet. However, benefit to dick of having spot is , and the cost for jane is . Solution: keep the dog, and dick pays jane in between - .