Coase Farm can grow soybeans on zero, one, or two fields, yielding a net present
ID: 2434839 • Letter: C
Question
Coase Farm can grow soybeans on zero, one, or two fields, yielding a net present value of $0, $15 million, or $18 million before any environmental damages inflicted by Taggart trains. Environmental damages inflicted by Taggart’s trains are $4million per field per track. Coase Farm’s payoffs as a function of the number of fields it uses to grow soybeans and the number of tracks that Taggart builds are shown below.Value of Caose Farm (in millions) as a Function of the Number of
Fields Planted and the number of Train Tracks
Zero fields One field Two fields
Zero tracks $0 $15 $18
One track $0 $11 $10
Two tracks $0 $7 $2
It is prohibitively expensive for Taggart Railroad and Coase Farm to enter into a long-term contract regarding either party’s use of its land.
Suppose Taggart Railroad cannot be held liable for the damages its tracks inflict on Coase Farm. Show that Taggart Railroad will build two track and Coase Farm will plant soybeans on one field.
Explanation / Answer
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