26 Jul WHAT HAPPENS WHEN THE CONFECTIONER HAS NOISY PROPERTY RIGHTS?
Consider the situation where a doctor and a confectioner (candy maker) are in adjacen Show more Coase Theorem: Consider the situation where a doctor and a confectioner (candy maker) are in adjacent offices to one another. For the doctor to be able to treat her patients the office building needs to be very quiet. However the confectioner needs to create a lot noise while producing his delicious candy. Suppose the confectioner receives a surplus of 40 from noisily producing his candy while the doctor receives a surplus of 60 for quietly treating her patients. If the doctor is given the property right to a quiet office space will the confectioner be able to produce candy? Explain. If the confectioner is given the right to create as much noise as he likes can the doctor treat her patients? Explain. Whats the total surplus in both situations? Now assume the doctor receive a surplus of 40 for treating patients and the confectioner receives 60 for making his candy. What happens when the confectioner is granted the right to make noise? What happens when the doctor has the right to a quiet office space? What is total surplus in both situations? Same surplus as part a. however now the confectioner has access to a soundproofing device that eliminates the sounds from his candy producing machine. The cost is 20 meaning his surplus will fall from 40 to 20 when operating his machine with the soundproofing device. What happens when the doctor has quiet property rights? What happens when the confectioner has noisy property rights? What is total surplus in both situations? Suppose the surplus to doctor and confectioner are the same as in part b. Suppose the confectioner still has access to the soundproofing device at a cost of 20. Lastly suppose the cost to coming to a negotiated agreement is 25. What happens when the confectioner has noisy property rights? What about when the doctor has quiet property rights? Do they negotiate in either situation? e.c.: 3.d. extended. Same as 3.d. but now the cost of negotiating is only 10. Is there a negotiated agreement when the confectioner has the property rights? What about when the doctor does? Show less
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