Environmental amenity rights, transactions costs, and technological change

Abstract

A general equilibrium model incorporating transactions costs and technological change is developed and used to investigate society's preference for the assignment of property rights affecting pollution. In contrast to the work of Coase, it is shown that indifference to the legal structure is a special case. Major results include (1) the specification of conditions under which society prefers polluters to pay for damages rather than allowing negative externalities to continue unless the polluters are bribed and (2) the conclusion that societies experiencing technological change eventually prefer the legal structure under which polluters pay for damages.