Question

For the following situations, use the Coase theorem to explain how a socially efficient solution may arise.

1. An adult bookstore, with a legal right to operate, causes psychic discomfort of $250,000 for a nearby church. The adult bookstore owner values his business at $200,000.

2.   A church has purchased a building with storefronts leased to several businesses. The church must decide whether to allow the businesses to renew their leases. One of the businesses is an adult bookstore whose owner values the location at $450,000. The continued operation of the adult bookstore would generate $250,000 of psychic discomfort to the church.

Answer 1

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