Question

Answer Choices

8. Private solutions to correct for externalities Aa Aa Suppose that a flower nursery benefits from having a butterfly farm located only a few miles away, because the presence of the insects greatly improves flower pollination. Lawyers for the two companies meet to draft a legal document specifying the number of butterflies the farm promises to maintain in exchange for payments to be made by the nursery. Which of the following types of private solution to the externality of pollination has occurred in this case? Q Charities O Contracts O Moral codes and social sanctions O Integration of different types of businesses The need for lawyers to work out a legal agreement between the flower nursery and the butterfly farm contradicts an important requirement of must be able to -namely, that the parties experiencing an externality Nevertheless, private solutions to externalities do not always work. One of the primary occurrences of this is when the number of parties involved is so large that it makes

First

-charities, contracts, moral codes and social sanction, or integration of differnt types of business

Second

-The Coase Theorem, The laffer Curve, Arrows Impossibilty Theorem

Third

-Agree upon an equitable initial distribtion of rights, go to small claims court, bargain at zero cost

Forth

-the market failure from the externality unimportant, government action the only viable solution, coordinating negotiations among all the of the parties too costly

Answer 1

Answer 1) MCQ

Option b) contracts as private solution for positive externalities

Answer 2) Coase theorem

Answer 3)  bargain at zero cost

Coase theorem says that if the property rights are assigned to the parties involved in the externalities, then if the cost of negotiation is small, then bargaining between the parties involved will lead to an efficient outcome regardless of which party is ultimately awarded the property rights, then we reach to the efficient solution , if the number of parties involved are relatively small.

Answer 4) coordinating negotiations among all the of the parties too costly