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 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.

THEOREM OF COASE This intuition is at the base of the so – called

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 purifier exists 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 the ACME it will be worthwhile To install a purifier 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? 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... 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 Mr. Smith is in degree To pay it to stop the pollution 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: 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 n n The difficulty to individualize in some cases the polluters or pollutes n n 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.