Risk Sharing in Coasean Contracts

Posted: 10 Jun 2002

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

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 Coasean 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: Environmental, risk, Coase Theorem

JEL Classification: Q2, K1, D8

Suggested Citation

Zivin, Joshua Graff and Small, Arthur A., Risk Sharing in Coasean Contracts. Available at SSRN: https://ssrn.com/abstract=306543

Joshua Graff Zivin

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

600 West 168th Street, 6th Floor
New York, NY 10032
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Arthur A. Small (Contact Author)

affiliation not provided to SSRN

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