Market-Oriented Environmental Tools

Read this section to learn more about how permits and the Coase theorem can be applied to solve environmental problems by defining user and property rights in society. Make sure to answer the "Try It" questions.

2. Better-Defined Property Rights

2.2. Watch It

Robert Coase's analysis of property rights and externalities led to the Coase theorem, which argues that the market can effectively solve the problem with externalities as long as the transaction costs are low and property rights are clearly defined. Watch this video for an example of this as applied to bees and the important role they play in creating honey and pollinating crops. While it seems likely that there could be a shortage of bees for the purpose of pollinating, beekeepers and farmers have worked out a solution themselves using the market.