Risk Sharing in Coasian Contracts

23 Pages Posted: 10 Jan 2001

See all articles by Joshua Graff Zivin

Joshua Graff Zivin

Columbia University - Department of Health Policy and Management; National Bureau of Economic Research (NBER)

Arthur A. Small

affiliation not provided to SSRN

Date Written: December 14, 2000

Abstract

The Coase Theorem is analyzed in a setting in which pollution damages are a stochastic function of emissions and of natural environmental variability (e.g., weather). When pollution damages are stochastic, emissions create financial risks. Pollution levels allowed under Coasian contracts then in general depend on agents' risk appetites, and on the initial configuration of property rights and bargaining power. In this case, resource allocation decisions are not separable from the legal institutions that allocate risks, nor from the financial institutions that facilitate risk transfer. In particular, improvements in environmental risk markets generally induce greater levels of pollution.

Keywords: Environment, risk, Coase Theorem

JEL Classification: Q2, K1, D8

Suggested Citation

Zivin, Joshua Graff and Small, Arthur A., Risk Sharing in Coasian Contracts (December 14, 2000). Available at SSRN: https://ssrn.com/abstract=254168 or http://dx.doi.org/10.2139/ssrn.254168

Joshua Graff Zivin (Contact Author)

Columbia University - Department of Health Policy and Management ( email )

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New York, NY 10032
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Arthur A. Small

affiliation not provided to SSRN

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