Consider how or if the Coase Theorem can be applied to the following scenarios. Specifically, think about the following issues for each of these questions:
(i) Are property rights well defined?
(ii) Will trading take place?
(iii) Are any of the assumptions required for the Coase Theorem likely to be violated in an important way?
(a) A tomato paste factory has been in a town for decades. During the summer, when tomatoes are ripe, it runs 24 hours a day, producing a lot of noise, a lot of truck traffic, and a distinct odor of tomato paste. A subdivision is proposed for vacant land next to the tomato paste factory. Those who would move into the subdivision may not like the noise, traffic, and odor produced by their neighbor.
(b) Many urban and suburban people in Michigan are moving to rural areas to "get away from it all." They discover that farmers are not always desirable neighbors: their operations produce odors, they spray pesticides and fertilizers on their land, and they also can be noisy at some times of the year. The Michigan legislature passed a "right to farm" law that prohibits local communities from imposing restrictions on farming activities.
(c) A number of places have prohibited smoking in public areas, including office buildings, restaurants, and bars.
(d) Many hazardous waste sites were created decades ago, often before the harm associated with the waste was well known. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the Superfund law, states that the companies that generated the waste are responsible for the costs of its cleanup.