Define property rights. Suppose the community passed a law giving citizens the right to a clean river. An extreme version of the Coase Theorem holds that the assignment of property rights has no effect on the efficient outcome. The law allows injured parties to recover damages according to liability rules. If the steel mill pollutes the river in a given year.
Calculating damages can be costly in practice .
The court is charged with determining damages when an oil tanker causes an oil spill. Public ownership of resources will yield the socially desirable outcome if the demand curve of government decision-makers corresponds to the social marginal benefit. There are many examples in which this fails to be true. Draw a graph indicating the level of output chosen by the managers and the loss in total surplus relative to the efficient level of production. Draw a graph with constant marginal cost and linear demand indicating the monopoly equilibrium.