“1. By ‘network externalities’ or externality (more correct term), it is meant that what I am doing, affects someone else. Surely it remains irrespective of whether rights are defined, transaction cost are zero or not etc. ”

I dont think this is true.

Your second point: I havent studied criticism of Coase’s theorem, but as far as I know, or what I have been taught, Caoses theorem is applicable if those 2 conditions satisfy. I am not saying its right, but can you give me a model where because of income distribution there are network externalities when property rights are assigned and T.C. are zero. I havent seen any example.

I agree that many times its impossible to define property rights. e.g. the air we breathe. So, there will be externality. But Coase’s theorem doesnt object to this. It says if property rights can be assigned and T.C.s are 0.

3rd point:
A rich person will consume more plastic bags. No one is arguing about it.

But given a current income distribution a tax on plastic bag is going to reduce consumption of plastic bags. How much it will change depends on the elasticity, right? It can be different at different income levels points. But there has to be a point even on rich peoples curve where the elastcity would be very high, i.e. they would substitute away from using plastic bags, or would use enough to get us closer to the equilibrium quantity. Now, we would want to tax the plastic bag manufacturer accordingly.

Our aim is to reduce overall consumption of plastic bags. Rich people spend more or less is immaterial. As long as total production drops we are happy. and if rich people ar using it because of certain fascination with plastic after paying obscene amount for the bag its okay because the overall productiuon has dropped.

Here are my clarification.

1. By ‘network externalities’ or externality (more correct term), it is meant that what I am doing, affects someone else. Surely it remains irrespective of whether rights are defined, transaction cost are zero or not etc.

2. Coase theorem does not take into distributional consideration because it implements a ‘pareto efficient’ solution, which does not care how the income among the people is distributed. Time to brush up economics books ;-)

3. The idea behind rich will pollute more if there is taxation is, when people decide whether to buy plastic bags (thus paying taxes) or not, they consider what is the opportunity cost of doing so. For the rich if they do spend the money on plastic bag it does not hurt them much. So they go ahead and use it. For the less rich, the opportunity cost of using plastic bags is high, so they do use them. In short, the substitution is between money and bag. For the rich, one unit of money does not mean much.

every time theres any such incident one or the other execuse is found either a plactic problem or old construction or infrastructure etc etc
Reality is Our Civic bodies have become a virtual mess and a political playGround. they dont have time to think about the city and the people for whom they exist.they are the best examples of Babudom.
India is not alone from China to UK Africa to US all cuntries use plastic and many such other items having potential to clog the drain. but that clogging never happens in there cities…..

some ideot babu/neta will give our people a execuse and all of us a good citizens we are started beiving him …..

aman, i didnt say network externalities dont exist when transaction costs are zero, i said, when property rights are clearly defined and transaction costs are zero, network externalities dont exist. and as far as i know, thats true. coase’s therorem.

Coase’s theorem is criticized because its misunderstood. “Of course it is criticised as it does not take into account distributional considerations etc.” but he assumes that the transaction costs are zero. Our prof. told us a fascinating story about how him, a few others and coase fought over that one whole night after he presented it in a seminar and by the morning he convinced everyone.

He won the Nobel prize because it became a very useful tool for litigations. All the judges take seminars and courses just on this to understand how property rights should be assigned.

coase’s theorem doesnt talk abt how property rights should be assigned.

in general transaction costs arent zero. so, who owns the rights determines transaction costs. (thats true.. just try doing a model where a company pollutes a river. in one case people own the right to the river and company has to pay them not to pollute. in other case the company opwns the right and people have to pay the company. if transaction costs are zero, it wouldn’t matter who owns the preperty rights. but clearly every person paying the company would incur a lot of transaction costs. so the company is the least cost avoider and the property rights should be assigned to the company. got it! )and thats why the least cost avoide should own the right, that way somewhat internalizing the network externality is possible and we come close to the efficient outcome.

to say that taxing wont solve the problem is simplistic. there must be a level of tax which should solve the problem. we can debate on whats the best way to solve the problem is and how we should go about it.

as Alok says, making them at least 10 times more expensive might make sense.

“Apart from the flawed philosophy that you can pollute if you are rich,”

I didnt quite understand how this is correlated to the taxation issue. Of course if you are rich you have more ability to pay for costly plastic bags. But if the substitutes are cheaper, why would a rich person pay for a plastic bag. wouldnt he/she go for the substitute. Secondly, for plastic bags, pollution etc. including human life, there is an efficient quantity that we can sacrifice for an efficient outcome (When I say human life, I am sayign a statistical human life, not actually killing someone). and if the tax is able to achieve that then why not?

Your issue about implementation is valid. and that should be looked into.

On this particular question of plastic bags, CNG etc., I suppose taxing at no point will solve the problem. Apart from the flawed philosophy that you can pollute if you are rich, the enforcement is an enormous issue, especially in a poor country like ours. Banning seems to be the only solution. We can learn to carry our private bags to the store. Individual preferences are known to be quite adaptive to legal, social environs.

Just a quick thought. For all the celebration over CNG in Delhi, has anyone thought of implementing it on private cars, which far outnumber other vehicles and pollute the most? The elite policy makers and public opinion manufacturers stand exposed on such obvious matters.

paralle - petrol is not substituable, so taxing petrol wouldnt reduce the demand as much as it would for plastic bags. and thats why as Alok puts it, it was necessary to ban the non-CNG vehicles because taxing wouldnt have solved the problem. Petrol demand is highly inelastic. So to avoid social waste given all the constraint - probably best solution was to ban the vehicles not running on CNG.

Moderators,

What is the intended use of me supplying the email id while posting? I supplied correctly a few times with the expectation that I would be notified of new comments. I am not being notified, it has been a while since this group blog is up, (it runs Wordpress, which should be capable of email notification) so is that feature under somebody’s implementation schedule?

Thanks in advance