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Quickie: Seal hunts and the Coase Theorem March 26, 2009

Posted by tomflesher in Academia, Canada.
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Andrew over at the Stackelberg Follower discusses the economics of the seal hunt and briefly touches on the world’s response:

[I]t is clear that a large part of the world either derives disutility from the seal hunt, derives utility from decrying the seal hunt, or some convex combination thereof. If it the former, there is a possibility for a Coasian bargain, i.e. the rest of the world pays off Atlantic Canada to stop the hunt/transport the seals somewhere else. If the latter dominates, then it is optimal for the hunt to continue.

A Coasian bargain is an application of the Coase Theorem, which in this case basically says that if the seal hunt imposes externalities on the rest of the world, then the rest of the world can pay Atlantic Canada some amount a) greater than or equal to the economic benefit derived from the seal hunt, and b) less than or equal to the economic cost generated by the seal hunt.

The Coase Theorem is applied commonly in tort law, where the cost of the tort is allocated to the party most able to bear it, and the parties are expected to negotiate out a more efficient allocation themselves (with failed negotiations penalizing the more-able party). The idea is that if the court’s allocation is inefficient, the parties are in the best position to make it optimal.

That said, neither of us is aware of any situation in which a Coase bargain has been attempted in a similar situation.

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