The Problem Of Social Cost - 925 Words

In 1960 Ronald Coase published an essay called, â€Å"The Problem of Social Cost†. In this essay he discussed many things that have made it one of the most quoted essays in economic and law arguments. However, the main reason for this popularity was his proposition of a theory that has since been called the Coase Theorem which states that â€Å"if trade in an externality is possible and there are no transaction cost, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.† If someone has never heard or studied economics before they would probably very confused by that statement, so the best way to explain this concept is through an example. To start off, we can look at Professor Sean Mullholland’s example from his video on negative externality and Coase Theorem. In the video he uses the example of a farm owner and fishermen who represent the actual fishermen, the land owners, and the recreationist. Now the far m owner’s farm is on a stream which flows into a lake which the fishermen use. When the farmer is planting his crops he has to use a fertilizer that doesn’t fully stay on the land and some of it flows into the stream thus flowing into the lake. With all of the excess fertilizer in the lake a large amount of the fish population is exposed to the fertilizer which has chemicals that will kill them. This causes a very big and obvious problem for the fishermen, so then there are two routes that this can go down. One route isShow MoreRelatedThe Problem Of Social Cost1117 Words   |  5 PagesThe Problem of Social Cost The Problem of Social Cost by R.H. Coast is an article examining the economic problem of externalities. The example of externality is a firm’s smoke imposed negative effects on neighbor properties. 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