QUESTION 5A factory has the right to pollute and so releases sulphur dioxide from its smokestack. It currently does not abate its emissions at all because it would cost $3250 to reduce emissions to the socially optimal level. The many residents in the nearby town suffer total damages of $3500 and so enter legal negotiations with the factory to reduce emissions. The cost of the negotiations (in legal fees) to the residents is $1000. Assume the factory and all residents in the town have full information. Does the Coase Theorem suggest that emissions will be reduced to the optimal level in this case? What is the gain or loss to the residents that would result from bargaining?No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because transaction costs are high. The loss to residents would be $750. No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because property rights are not clear and enforceable. The loss to residents would be $750. No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because transaction costs are high. The gain to residents would be $250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because all assumptions are satisfied. The gain to residents would be $250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because transaction costs are low.The gain to residents would be $250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because the factory is naturally incentivised to reduce emissions given the threat of legal proceedings.There is no gain or loss to the residents.

QUESTION 5A factory has the right to pollute and so releases sulphur dioxide from its smokestack. It currently does not abate its emissions at all because it would cost $3250 to reduce emissions to the socially optimal level. The many residents in the nearby town suffer total damages of$3500 and so enter legal negotiations with the factory to reduce emissions. The cost of the negotiations (in legal fees) to the residents is $1000. Assume the factory and all residents in the town have full information. Does the Coase Theorem suggest that emissions will be reduced to the optimal level in this case? What is the gain or loss to the residents that would result from bargaining?No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because transaction costs are high. The loss to residents would be$750. No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because property rights are not clear and enforceable. The loss to residents would be $750. No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because transaction costs are high. The gain to residents would be$250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because all assumptions are satisfied. The gain to residents would be $250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because transaction costs are low.The gain to residents would be$250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because the factory is naturally incentivised to reduce emissions given the threat of legal proceedings.There is no gain or loss to the residents.