Applying The Coase Theorem

1. Applying The Coase Theorem Law and Economics-Charles W. Upton

2. Sturges v. Bridgeman • For more than 60 years, a confectioner used two mortars and pestles. A doctor moved next door. Applying the Coase Theorem

3. Sturges v. Bridgeman • For more than 60 years, a confectioner used two mortars and pestles. A doctor moved next door. • All was peace and harmony, until the doctor built a consulting room right against the kitchen. Applying the Coase Theorem

4. Sturges v. Bridgeman • For more than 60 years, a confectioner used two mortars and pestles. A doctor moved next door. • All was peace and harmony, until the doctor built a consulting room right against the kitchen. • The court ruled for the doctor, but the ruling makes no difference. Applying the Coase Theorem

5. Doctor Wins BConsulting Room > BMortar and Pestle Yes Doctor Stays, no money changes hands Applying the Coase Theorem

6. Doctor Wins BConsulting Room > BMortar and Pestle Yes Doctor Stays, no money changes hands No Doctor moves, money changes hands Applying the Coase Theorem

7. Doctor Loses BConsulting Room > BMortar and Pestle Yes Doctor Stays, money changes hands Applying the Coase Theorem

8. Doctor Loses BConsulting Room > BMortar and Pestle Yes Doctor Stays, money changes hands No Doctor moves, no money changes hands Applying the Coase Theorem

9. Doctor Wins or Loses BConsulting Room > BMortar and Pestle Yes Doctor Stays No Doctor moves Applying the Coase Theorem

10. Doctor Wins or Loses BConsulting Room > BMortar and Pestle Yes Doctor Stays All that is at issue is whether money changes hands. No Doctor moves Applying the Coase Theorem

11. Cooke v. Forbes • Coca nut fiber matting was hung out to dry after being bleached. Applying the Coase Theorem

12. Cooke v. Forbes • Coca nut fiber matting was hung out to dry after being bleached. • The fumes were dreadful. Applying the Coase Theorem

13. Cooke v. Forbes • Coca nut fiber matting was hung out to dry after being bleached. • The fumes were dreadful. • The neighbor asked for a restraining order. Applying the Coase Theorem

14. Cooke v. Forbes • Coca nut fiber matting was hung out to dry after being bleached. • The fumes were dreadful. • The neighbor asked for a restraining order. • He did not get it, but got the right to sue for damages when the smell occurred. Applying the Coase Theorem

15. Neighbor Wins or Loses BFumes > Bpeace and Quiet Yes Mats Stay No Mats Go Applying the Coase Theorem

16. Neighbor Wins or Loses BFumes > Bpeace and Quiet Yes Mats Stay All that is at issue is whether money changes hands. No Mats Go Applying the Coase Theorem

17. Bryant v. Lefever • Two houses of the same size. One house was torn down and rebuilt. It then caused the chimney of the original house to smoke. Applying the Coase Theorem

18. Bryant v. Lefever • Two houses of the same size. One house was torn down and rebuilt. It then caused the chimney of the original house to smoke. • Bryant sued and won £40 in damages. The appeals court reversed on grounds that the plaintiff was causing the damages. Applying the Coase Theorem

19. Bryant v. Lefever • Two houses of the same size. One house was torn down and rebuilt. It then caused the chimney of the original house to smoke. He sued and won £40 in damages. The appeals court reversed on grounds that the plaintiff was causing the damages. But who really caused the problem? Both did. The decision is one of setting property rights, not in terms of determining the ultimate decision. Applying the Coase Theorem

20. Bass v. Gregory • The Cellar of the Jolly Angler was used for brewing and the air was then vented into an abandoned well on the property of the neighbor. Applying the Coase Theorem

21. Bass v. Gregory • The Cellar of the Jolly Angler was used for brewing and the air was then vented into an abandoned well on the property of the neighbor. • The defendant boarded up the well, and thus rendered the Cellar unusable. Applying the Coase Theorem

22. Bass v. Gregory • The basic question was whether the Jolly Angler had the right to a current of air. Applying the Coase Theorem

23. Bass v. Gregory • The basic question was whether the Jolly Angler had the right to a current of air. • The court said yes, using the doctrine of lost grant. Applying the Coase Theorem

24. Bass v. Gregory • The basic question was whether the Jolly Angler had the right to a current of air. • The court said yes, using the doctrine of lost grant. This is a different result than in Bryant v. Lefever. Applying the Coase Theorem

25. Bass v. Gregory • The basic question was whether the Jolly Angler had the right to a current of air. • The court said yes, using the doctrine of lost grant. This is a different result than in Bryant v. Lefever. Doesn’t matter. All that is at issue is whether money changes hands. Applying the Coase Theorem

26. End ©2004 Charles W. Upton Applying the Coase Theorem