Question

4. Why might using "willingness to accept" give different valuations than "willingness to pay" would give? 5. Explain why the "efficient" level of pollution might depend on the initial assignment of Rights. 6. What are some reasons why Coasean bargaining might not lead to an "efficient" level of pollution? (150-300 words)

Answer 1

Part A

The term willingness to accept (WTA) means that the minimum amount of money a person accept to abandon a good for something negative. It is equal to the base money related sum required available to be purchased of a decent or procurement of something bothersome to be acknowledged by a person. Similarly, Willingness to Pay (WTP) is the maximum amount a person is a willingness to sacrifice to avoid something bad. The net difference between WTA and WTP is the social surplus.

Part B

The efficient level of pollution means that the quantity where the total benefits exceed the total cost by the greatest possible amount of pollution. It is marginal benefits exactly equals the marginal cost of pollution. According to the Coase theorem, the efficient level of pollution does not depend upon the initial assignment rights.

Part C

The Coasean bargain cant sees in the real-world situations. He argued that the well-defined property rights, the polluters are suffered when they reached by using side-payments. It could lead to an efficient level of pollution. The solution is the efficient level of pollution does not depend upon the initial assignment of property rights.