The debate among economists rages stronger then ever: whether the Coase Theorem or a Pigouvian tax works more effectively in cases involving environmental use and misuse . "Pigouvians" accuse "Coasians" of being ultra right-wing conservatives who would provide the rich and powerful with unfair advantages in the use of common or public property. "Coasians" claim that "Pigouvians" are disloyal to the fundamental economic principle that well-defined property rights always bring about the most efficient and economical use of a resource. Economists must decide which theorem or problem of how well the property rights are defined. They must also decide what, if any, are the transaction costs, and how many people are actually touched by the problem. Do some on-line research to learn more about both of these approaches to environmental concerns. Then write an ending to a story that advocates one approach over the other.
You are about to explore on-line information that will help you understand and reach some conclusions about one of the modern world's most perplexing and serious problems. How can modern men and women provide for the needs and wants of the world's growing population while holding destruction of our productive resources to a minimum? You will learn about two hotly debated approaches to this problem: the Coase Theorem and the Pigouvian tax method. After you have developed an understanding of these concepts, complete an ending for a story advocating one approach to successfully resolve the issue.
1. Read Visuals 1-6. Answer the following questions on Visual 6 that pertain to the chart.
What if the factory is given the right to dump?
Which alternative seems to be the most advantageous to the fisherman?
How might a reasonable and equitable solution be achieved?
Which of the alternatives seems to be the most equitable?
What are the negative externalities if property rights are assigned to the fishermen?
What are the positive externalities if property rights are assigned to the fishermen?
What are the negative externalities if property rights are assigned to the factory?
What are the positive externalities if property rights are assigned to the factory?
- What solutions apart from Coase could solve this problem?
2. Read Student Handout 1, Fish Till You Drop vs. New Sense, Inc. To decide on an ending for this story, visit the following web sites and read two different opinions concerning how this pollution problem might be solved.
3. After you have read the articles, decide which approach would be most successful and efficient for cleaning up Lake Smiley. Write an ending to the story using the approach you support.
Once the activity is complete, you are ready to have a class discussion as well as do the following:
- Use the Internet to research pollution cases in which Coase's approach has been employed and cases in which Pigouvian taxes have been employed.
- Research a pollution problem that has occurred in your community or region. How was the problem handled? Was the method effective?
See how well you understand the concepts presented in this activity by taking this quiz.
- Do you want to see how economists analyze and evaluate the Coase Theorem and the Pigouvian tax method? Use the Search engine on your computer to search for sites where economics professors have posted their powerpoints and lecture notes. Search for "Coase Theorem," "Pigouvian taxes," "Externalities," or "Market Failures." You will get a better understanding of both methods. Remember, economists believe that if a picture is worth a thousand words, a graph is worth a million.
- Using what you have learned in this lesson, extend your investigation by researching oil spills, mining tailings, oil exploration, auto emission standards and Clean Air and Water legislation. Identify the method(s) used to resolve the pollution issue: negotiation, regulation, or market-based solutions. Were the theorems of Coase or Pigou brought into play?