This model's predictions fail in markets characterized by a strong endowment effect.
This model's predictions fail in markets characterized by a strong endowment effect. Its predictions hinge on private organizations that impose negative externalities, eliminating the need for legislation, and thus invalidating Pigou's Theorem that only social cost need be paid. Its illustration involves tenants paid either for pollution or for non-production, resulting in identical solutions. Proposed in the essay "The Problem of Social Cost," FTP, name this theorem named by Stigler that states that an efficient outcome may be reached if transaction costs are negligible and property rights are well defined, regardless of property ownership.
This model's predictions fail in markets characterized by a strong endowment effect.
Coase's Theorem