Reference no: EM131212472
Ronald and His Daughter
The living room floor at Ronald Coase's house is common property. His daughter, Joan, really likes to drop clothing items on the living room floor; Ronald hates this form of littering. If Joan is left to do as she wishes, she will drop ten items of clothing per week. The following table indicates Ronald's total willingness to pay (WTP) to stop this littering-or, alternatively, his willingness to accept (WTA) continued littering. It also shows Joan's total WTA to stop her from dropping clothes (or alternatively, her WTP to be allowed to continue with the practice).
a. Fill in the marginal columns, and identify the efficient cleanup level. At the efficient cleanup level, what are the net benefits to the family? What are the net benefits to the family if the floor is completely clean?
b. Graph the marginal costs and marginal benefits of cleanup.
c. Suppose that Joan initially has the right to dump as many clothes as she likes (and dad has to pick up-as is the case for a small child). If there are no transactions costs associated with bargaining between dad and child, what would Coase predict to be the outcome, and how, specifically, would we get there? (Hint: It has to do with bribery.)
d. As Joan grows up, dad decides to flip the property rights. Joan no longer has the right to dump her clothes in the living room. Ronald has the authority to penalize Joan (by withholding allowance) if she dumps any clothes. Assuming no transactions costs, what would Coase predict to be the outcome; and how, specifically, would we get there? (Hint: Coase would be a weird dad, because he would ... do what?)
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