"The ideas of Ronald Coase significantly contribute to governments' ability to tackle environmental problems"
Introduction
Throughout the years, the value of the environment has been taken for granted by different individuals as well as various corporations. It has been noted that the most technologically advance facilities and equipments and also other human activities had put extreme damages in the environment and its important elements such as air, water, land and others. With these environmental problems, the government have been able to establish ways and means to enable the society to become more aware in adhering to sustaining the environment. It can be said that with the changes that are rapidly happening in the world, the government must have an appropriate model to follow in order to continuously adapt to the changing environment and sustain environmental needs. One of the ideas which have been considered to significantly contribute to the ability of the government to tackle environmental issues is the idea of Ronald Coase.
This paper aims on provides reasons on how Ronald Coase’s ideas have been able to contribute to the governments actions and abilities.
Ronald Coase Significance
Environment is considered as a product of various interactive procedures of different components in a system unless expressed in terms contributing factors or resources. Herein, the interactive aspects between living and non-living things creates products and services, which act both as materials and inputs for the continuity s well as performance of the system and as its output. Therefore, several cases have shown how environment has been damage because of the irresponsible users. (Goodland, 1995)
Ronald Coase is a well-known British Economist who has received a Nobel Prices in Economics because of his discovery as well as clarifications of the transaction costs as well as the property rights for the organisational structure as well as operations of the economy. According to Coase (1960), a well-defined property rights can overcome and surpass issues of externalities because different environments issues arise from lack and poorly defined property rights. The work of Coase has been vital for the Coase theorem, which is considered as the foundations of environmental economics. Accordingly, a polluter and an affected party can reach a mutually beneficial bargaining if the destruction from pollution exceeded the net of the polluter’s return fro the sale of the good which generates the pollution. In this regard, the argument presumes that the transaction costs are zero.
The aim of Coase model is to criticise the modern theory of negative externalities by exposing the weaknesses of the polluter. Coase theorem has been used by the government to solve environmental issues. Coase theory has been able to develop two basic theoretical themes: the reasons why corporation’s are formed in a competitive economy and the next is the vital role of the legal system and specifically the assignment of property rights, in times in which production externalities emerge. The government used this theory because it has been able to maintaining the contemporary firm owes its emergence to transactions. Those are the costs linked with the discovery as well as the announcement of trading positions, contracting, negotiation, as well as ensuring of contract compliance. In addition, such costs are inherent to the price scheme as well as it can also play an essential role in production decisions. Accordingly, If transaction costs which is considered by the government become large relative to price, they can avoid potential trades from being realised. In accordance with the direct allocation by different individuals through competitive market prices, including the costs of obtaining, securing as well as protecting the property rights to environmental resources, that is, transactions costs must be subtracted from the gains which normally accuse to competitive market trades.
It can be said that government face different problems, specifically those counties which accompany low per capita incomes as well as the issues of environment degradation simultaneously. When the government need a means of increasing their domestic income, they can use Coase formula for resource extraction which is substantial, direct as well as immediately available source. There are many reasons which can consider showing that Coase model is significant with government regulation.
Another reason that this theorem of Coase is significant to government is because of the provided formula that Coase provided. It can be said that if firms emerge then it must be because the costs of the factor allocation within the company is efficient relative to the costs of direct factor and resource allocation for individuals which confront the transaction costs of competitive market prices. Herein, negotiations are complication in which influenced parties are various, the likelihood, is that companies will emerge as an alternative agent for decision-making increases. Companies coexist, with direct allocation by people because they give a more efficient organisational arrangement for minimising transaction costs.
The second major reason represents essential and significant rejection of the commonly accepted approach of correcting for negative externalities. In particular, the government also rejects some solution which internalise the damage costs to the producer of the externality through the intervention of the government (Coase, 1960). In this theory, the system requires a legal system to assign damages in unpredictable manners. For instance, if neighbors A as well as B share a duplex basement and that Neighbor A decides to produce beer in the basement and the vapours from the brewing have caused headaches for the neighbor, legal policies usually award damages to neighbor B. In this regard, the government considered Coase’s aspects which makes point that damages and destructions are of a reciprocal nature and that the economic operations is attenuated under different solution. In another example, for a legal situation in which a doctor built an laboratory and examination area adjacent to a confectioners, candy-mixing machine, the government can use Coase’s theory which conclude that there is no analytical different between the right to use a specific resource without directly harming to others as well as the right to conduct and consider activities in a manner that will product direct damages to others. In this case, some aspects has been denied to others, in the first case the use of a resource and the other is the use of the mode and method of operation. This case also enables the aspect of the reciprocal nature of the connection that tends to be ignored by economists (Coase 1960; 1992).
In making solutions for environmental problems, the government notes that the ideas of Coase has been able to fundamentally change the relationship between the legal and economic systems. This is because the coaseain solution for externalities is an ex-ante solution. In this regard, the critical economic decisions have been relying on the initial assignment of property rights by the legal policies before the damage is done. It can be said that the initial assignment of property right is under situations of low transaction costs, immaterial (the economically optical resource allocation will show under any initial assignment. The government have been mentioned that according to Coase, the property rights delineation is a significant prelude to market transactions, however, the ultimate result that maximises the value production, is independent of the legal choice (Barzel, 1989). Once legal rights has been initiates, negotiated changes to the contract can and will be considered in which the benefits exceed costs.
The government roles is to minimise whether to accept the solution provided by coase for environmental externalities. As can be noted, coase has been able to view the organisation as an alternative and substitute to the market in resource allocation which the cost of utilising the market to provide or allocate and distribute are relatively highly to the administrative costs connected with the firm operation. In this regard, following the same reasoning, if the establishing costs or if extension of a firm is relatively high to government regulation then Coase theorem, noted that direct government regulation can remain as a substitute ways of allocation. It can be said that the regulation of the government is most likely to emerge as the allocation device of choice in which a large number of people are involve and in which, hence, the costs of handling the problem through the market or the organisation are high.
The consideration of direct regulation by the government has been able to introduce an entirely new set of issues but Coases has been able to provide solution for this. The two issues which have been given consideration include the subversive role which rent seeking is likely to pay in terms of allocation as well as the complete absence of competent restraint. It can be said that the government is a super organisation which has the ability to affect not only the aspect of production but also the organisational rules that surrounds it. It is said that any organisation that operations in non-monopolistic markets is subject to the competition of other organisations. Hence, competitors might administer the same function at a lower cost and there has always been a substitute of market transactions if the internal administrative costs have been too much. ]
Herein, the government has the ability to prevent market altogether, which organisation are not doing. Coase has been criticised the nation that many turn to government policies with too much trust and too little prevention, and in this regard, the government is still considering the theory of Coase in every regulations.
Conclusion
In this regard, it can be said that Coase theory has been able to provide ways to the government in terms of providing solutions to environmental problems. In addition, it is also shown that coase theorem have various principles, approaches as well as issues and problems which has been considered to be able to express that government responsibly committee in solving environmental issues. . It is said that the people nowadays expect firms and regulations not only to perform conventional functions of providing quality products and services but also to help the society to solve environmental problems and issues. If such aspects are generally seen and considered by different firm including government then such the country can be considered to be social and environmentally responsible.
Reference
Barzel, Yoram. (1989) Economic Analysis of Property Rights, Cambridge University Press,Cambridge, 1989.
Coase, Ronald H (1960). "The Problem of Social Cost." Journal of Law and Economics, Volume 3, 1960.
Coase, Ronald H. "The Institutional Structure of Production". The American Economic Review, Volume 82, Number 4, September, 1992.
Deacon, Robert T, and Paul Murphy. "The Structure of an Environmental Transaction: The Debt for Nature Swap." University of
Goodland, R. (1995). The Concept of Environmental Sustainability. Annual Review of Ecology and Systematic 26: 1-24.
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