THE THEOREM OF COASE
Who pays always right ?
1. THE PRECAUTIONAL PRINCIPLE
1.1 The problem of the dynamic
externalities
2. THE THEOREM OF COASE
2.1 Configurations of alternative owners
2.2 Efficiency
2.3 Limits of the theorem
2.4 Practical applicability
HOW WE INTERNALIZE THE POLLUTION
EXTERNALITIES
 Percautional approach
 Approach of cost – benefit
Precautional principle
Uncertainly of the pollution environmental
effects requires the determination of serve
emission standard and insists on the
prevention of the pollution emission …
Through the adoption of “Cleaning up”
technologies
Rather than on their treatment once happened
through the adoption of filtration and
purification systems applied to technologies of
high environmental impact
The principal uncertainly regarding the
accumulation of the polluting residues:
It is not said, which time, the environment
maintains its availability of operation in front
of high levels of pollution !
We can shape a problem of dynamic
externality that persists a substantial
uncertainly around the environmental long
period impact for such flow of polluting
emissions.
The percautional principle
intends to keep track of this aspect.
The precautional principle
raises all mechanisms of
command and control.
According to many economics the precautional
matter doesn’t suppose if it holds the
structure of the ownership rights connected to
the resources involved by polluting activity
They will be the economic agents
that resolve the problem
according to their interest
If particularly the owner of resource is
worried about the possible future pollution
consequences on the environment,
He will avoid the reason to produce it.
This intuition is at the base of the so – called
THEOREM OF COASE
If in fact the ownership rights
of the resources are specified
clearly and the costs of transaction
between the two parts are not too high …
There won’t be a need
of the external intervention
of the state as the two parts
will reach through the bargaining
an accord that satisfy both of them.
Suppose that for the polluter
the industry ACME,
the possibility to utter polluting substances
on the terrestrial X is worth 10…
And that for the owner of the terrestrial, MR.
Smith, the pollution damage (eventually
comprehensive of all the environmental future
danger) is equal to 7…
The ACME
will indemnify Mr. Smith for an
inclusive figure between 7 and 10
- According to the contractual power of two
parts -
In spite of being free to utter the polluting
substances
If on the other hand, the ACME was the owner
of the ground and Mr. Smith was a neighbor
that suffers damage equal to 7 for the
pollution emissions…
He could have an interest to
indemnify the ACME to stop polluting.
If however the possibility to pollute
is worth 10 for the ACME...
Mr. Smith won’t be able to
make offers
that will induce the ACME
not to pollute
We now suppose that a purifierexists
in commerce,
whose cost is 5, that it would reduce
the pollution of the ACME to tolerate levels …
… If the values are that of
the previous example
To the ACME it will be worthwhile
To install a purifier
Mr. Smith is not in degree
To make offers that will induce
the ACME not to pollute.
Particularly, if Mr. Smith is the owner of the
terrestrial X
The ACME will pay while
if the owner is the ACME,
Mr. Smith will pay.
If now the values were innerved
The polluting is worth 7 for the
ACME and it produces damage 10 for
Mr. Smith what would happen?
If Mr. Smith is the owner of
the ground ...
The ACME won’t be now able
To make an offer that satisfy him
it offers 7 in front of a damage of 10
If instead the ground is of the ACME …
Mr. Smith is in degree
To pay it to stop the pollution
- From 7 to 10, according to the contractual
power of the parts -
If an anti – pollution deceive that costs 5 is
available, it will be installed and who doesn’t
posses the ground will pay
In the last analysis, THE THEOREM OF
COASE shows like the final use of the
ground
The fact that the polluter of pollutes will pay
in according to the cases not if correct or
unfair.
THE THEOREM OF COASE shows as in some
cases the possibility of entering the
externalities through a cost – benefits
approach based on the private initiative
On the other hand COASE was well known
that generally the things are not so easy
in which the accord between the parts
could be prevented by the presence of
costs of prohibitive transaction
In this case the public intervention can be
very important, for instance assigning the
law to the reimbursement to one of the
cases:
… This is an important economic
role of the legislation.
ULTERIOR PROBLEMS CAN BE

The difficulty to individualize in some
cases the polluters or pollutes

The possibility of threatening behaviors
envoys in action from the part of
powerful causes
In the reality the possession of the
ownership rights on the resource is
indifferent from the social point of
view – over that naturally from the
individual – …
... Considerations of very important
equity that are tied to the bargaining
can be arisen.