The Coase Theorem works best in places that transaction costs for contracts amon
ID: 1091246 • Letter: T
Question
The Coase Theorem works best in places that transaction costs for contracts among people is low. Often in the world of torts and externalities both parties can claim that they have rights to impose on other.One case is that of a railroad that is noisy and scares the cattle and the rancher whose cattle sometimes wander in front of moving trains causing damage to them and the train. What does Coase say would happen?
a. the train should have property right to be safe from wandering cattle, and the rancher should be liable for train damage of rampaging cattle.
b. the rancher should have the property right to be safe from noisy trains and the railroad should be liable for weight loss of cattle from train whistles and rumbling noise
c. if transaction costs are low, the efficient activity will occur, either the rancher or railroad installing fences to protect from rampaging cattle and or sound insulation with trees or if it is cheaper fewer train trips per day. The cheapest or most efficient solution will happen regardless of who is assigned the orignal property right.
In determining the optimal capital budget, one should choose those projects whose______ exceeds the firms ____ cost of capital.
a. IRR, average
b. IRR, marginal
c. IRR, historic
d. average rate of return, marginal
e. none of the above
Explanation / Answer
c. if transaction costs are low, the efficient activity will occur, either the rancher or railroad installing fences to protect from rampaging cattle and or sound insulation with trees or if it is cheaper fewer train trips per day. The cheapest or most efficient solution will happen regardless of who is assigned the orignal property right.
b. IRR, marginal