4. Consider the following four cases: a. A man speeds and wipes out a fence of y

Question

4. Consider the following four cases: a. A man speeds and wipes out a fence of yours worth $100. The man gets fined. b. A man steals $100 from your house, is caught, and thrown in jail. c. A man plants a tree on his property that blocks your view and reduces the value of your property by $100. The police just tell you to take him to court. d. A man opens a business just like yours and draws $100 worth of customers away. The man gets a pat on the back.

In each case you lose $100, yet the social rules used to respond to each loss is different. Questions:

i. Why is there no penalty in (d)?

ii. In (a) and (b) laws were broken. Why might some crimes have fines and others internment?

iii. Why does the Coase theorem not apply in (c)?

Explanation / Answer

ans 1) there is no penalty in the d) case because in this case you are afcing loss beacuse of new entrant in the market and increase in competition , so this means he is not committing any crime as opening a business is not a crime.

ans 2) in case a) law is broken and it imposes loss on person whose fence has been wiped , but this crime doesn't mean he willl be imprisoned but he will fined because he might nit have done it intentionally.

in case b) thief is caught and he is intentionally providing loss or harm to others, so he will be imprisoned for this . this calls for imprisonment

ans 3) according to coase theorem , economic efficiency needs to be achieved in the presence of externality. but in this case, externality is not yet acknowledged by the source of externality. so unless until externality will not be incorporated , coase theorm is not applicable

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