MECO712 Environmental and Ecological Economics Question Answer 2022

Running head: QUESTION 0
MECO712 ENVIRONMENTAL AND ECOLOGICAL ECONOMICS B
APRIL 7, 2020
STUDENT DETAILS

QUESTION 1
Answer (a):
The concept of externalities is considered as very significant area of the economics as while
Arthur Pigou initially assumed a concept in ‘The Economics of Welfare’. The externality has
very important effect on the social well-being. The externalities take place while the actions of
one person put impact on the well-being of other person and the relevant benefit and cost is not
stated in the marketplace price. It can see that the positive externalities are considered as
advantages that are infeasible to charge for rendering. In opposition, the negative externalities
are considered as costs that are infeasible to charge for not providing. The uncompensated
impact of the actions of one individual on the welfare of the bystander. It can see that they can
be resolved without any intervention of government throughout the communal sanction (like
littering), ethical code, charity, merger of entities whose externality puts effect on others, or by
the agreement. The government attempts for combating the market inequities throughout the tax,
subsidies, as well as regulation. The government can sometimes interfere in the marketplaces for
promoting the objective, like central unity along with development ( Chipman and Tian, 2016).
Moreover, in economics as well as law, Coase theorem defines the financial effectiveness of the
financial distribution or the outcomes in existence of the externalities. In this way, it is also
mentioned by Coase theorem that if it is possible to trade in the externalities and there are
satisfactorily lower cost of transaction, then the bargaining would lead to the Pareto effective
results irrespective the primary distribution of the properties. In reality, the obstacle to
bargaining and badly described right of property may stop Coasean bargaining. It is also argued
by a theorem that provided evidently described rights of the property either on the affected
contracting person or on generator of the externality; the private compromise would create the

QUESTION 2
effective results throughout the payment of rewards as well as compensation. The Coase theorem
explains that in presence of the externalities, the private entities would arrive at the effective
result without interference of government. As per this model, it can see that the irrelevant cost of
transaction like bargaining is reasonable between the involved parties. This models states that the
two mediators or negotiators of the economy are the affected people as well as maker of the
externalities (Hervés-Beloso and Moreno-Garcıa, 2016).
Government intervention is not always necessary to address externalities. Private actors will
sometimes arrive at their own solution. The Coase Theorem, named after Nobel laureate Ronald
Coase, states that in the presence of an externality, private parties will arrive at an efficient
outcome without government intervention (Munger, 2019). The different type of solutions
include charity, moral code along with business mergers or contact in self-interest of related
parties. Firstly, the moral codes direct the conduct of people. The people see that some actions
are merely not “right thing to do” or will provoke critical reaction from other people. It is
exemplified in a matter of littering. On the other hand, the charity channels donation from private
people towards struggling to limit behaviour that resulted into negative externality or
encouraging behaviour that produce the positive externality. The former can be seen in a matter
of entities that secure atmosphere, when later is demonstrated throughout entities that increase
money for the edification. Lastly, two businesses that provide positive externalities to others may
merge or take entry in the contract, which creates both contracting persons better off (Ross and
Gueno, 2019).
Further, the useful and relevant article of Coase ‘Problem of Social Cost’ (1960) changed the
manner to see the externalities by economics profession. In the great article of Coase, it is argued
by him that Pigovian method will, “lead to result that is not essentially or unavoidably