Coase Theorem
Aniket runs a catnip farm, and Kyle runs an adjoining cat cafe.Kyle’s cats keep wandering over and eating Aniket’s catnip.When Kyle’s cats eat Aniket’s catnip, Aniket suffers $1000 in damages. Aniket could fence his farm for $1000.Kyle could fence his cats for $2000.Hint:This problem is about assigning property rights and bargaining, NOT remedies.Now let’s consider what happens when Aniket has a right to secure his farm.First, what happens when transaction costs are $0?
