Theoretical Challenges
Guido Calabresi in his book The Cost of Accidents (1970) argues that it is still efficient to hold companies liable who produce greater wealth.
In the real world where people cannot negotiate costlessly, there may be collective action problems of those caused a nuisance, for instance by smoke emissions from a factory to many neighbouring farms, and so getting together to negotiate effectively can be difficult against a single polluter because of coordination problems. If it is efficient for the farmers to pay the factory to abate the emissions, some of those the farmers may hold off paying their fair share, hoping to get a free ride. The factory may be in a better position to know what measures to take to reduce harm, and can be the cheapest avoider, illustrating Coase's argument.
Read more about this topic: The Problem Of Social Cost
Famous quotes containing the words theoretical and/or challenges:
“Post-structuralism is among other things a kind of theoretical hangover from the failed uprising of ‘68Ma way of keeping the revolution warm at the level of language, blending the euphoric libertarianism of that moment with the stoical melancholia of its aftermath.”
—Terry Eagleton (b. 1943)
“A powerful idea communicates some of its strength to him who challenges it.”
—Marcel Proust (1871–1922)