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The Burnbright Electric Power Company has a coal-fired power plant located in Northern Utah. Consider three alternative scenarios.
6. The Burnbright Electric Power Company has a coal-fired power plant located in Northern Utah. Consider three alternative scenarios.
(i) The air pollution generated by burning coal at the Burnbright plant doesn’t cause any pollution, but the trucks that ferry coal to the plant on a daily basis cause traffic congestion for the residents of a small town nearby.
(ii) The air pollution generated by burning coal at the Burnbright plant causes severe haze to occur at the Grand Canyon National Park during the summer season.
(iii) The air pollution generated by burning coal at the Burnbright plant contributes to worldwide greenhouse gas emissions, which contribute to global warming over the next fifty years.
a) Do you think it is likely that Coasian bargaining will take care of the externality and generate a Pareto-efficient allocation of resources without any need for government intervention to control the externality? Answer for each case separately, and explain the reasons for your answer.
b) What are transaction costs? How might they enter the picture in each case? How could they affect the outcome of Coasian bargaining
