Some of the mangos from your neighbor's mango tree drop into your yard. You don't like mangos and the fallen mangos make it harder to mow your lawn. Your neighbor values the tree at $300, and your cost of dealing with it is $500. If your neighbor has the legal right to keep the tree, what would be an efficient outcome according to the Coase theorem?

Question

Raymond Ward

Business

6 October, 20:19

Some of the mangos from your neighbor's mango tree drop into your yard. You don't like mangos and the fallen mangos make it harder to mow your lawn. Your neighbor values the tree at $300, and your cost of dealing with it is $500. If your neighbor has the legal right to keep the tree, what would be an efficient outcome according to the Coase theorem?

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Answers (1)

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Ingrid Dalton · Answer 1

You should pay your neighbor any amount higher than $300 and lower than $500 so that he cuts the tree down.

Explanation:

Under the Coase Theorem both parties will seek an economical solution without regarding the initial property rights.

This means that it doesn't matter if it's your neighbor's tree that bothers you, what matters is that you don't want to be bothered anymore. You value removing the tree at $500, and your neighbor values his tree at $300. So an economically optimal solution to this dispute would be for you to pay your neighbor more than $300 but less than $500.