In a well-known legal case, a classic conflict of property rights was featured. Red cedar trees, used only for ornamental purposes, carried a disease that could destroy apple orchards within a radius of two miles. There was no known way of curing the disease except by destroying the cedar trees or by ensuring that apple orchards were at least two miles away from the cedar trees. Apply the Coase theorem to this situation. Does it make any difference to the outcome whether the cedar tree owners are entitled to retain their trees or the apple growers are entitled to be free of them? Answer
Coarse theorem is a concept in economics, which explains that efficiency in economic activities is best, attained through the full provision and absolute trading feely in property rights. The concept further explains that the most important thing is that everything is owned by someone. It is also based on two fundamental ideas of freedom of choice and zero operation costs. Actually, according to this theorem, there is no much difference created to the results whether the owners of the cedar trees are entitled to retain their trees or the apple growers are entitled to be free of them. The reason is because, what is most important is that both properties are owned by someone. Both parties need to have their property rights respected. If there is a situation that the trees are cut, their ornamental value is lost. Moreover, bringing the apple orchards closer to the trees, within a radius of less than two miles would lead to their eventual destruction. In order to ensure there is freedom of choice as well as the operational costs are minimized, a distance of at least two mile should be maintained between the apple orchards and the cedar trees. This ensures that both property rights hold. Question 2 CH 4 (P.89)
In primitive societies the entitlements to use land were frequently possessory rights rather than ownership rights. Those on the land could use it as they wished, but they...
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