Suppose the production of electricity by a utility generates pollution that harms others. Suppose also that Coase bargaining can occur between the utility and the victims of pollution but that the utility has not been legally liable for the damages from its pollution. How would the utility legally liable for the damages from its pollution affect pollution reduction?
If the electric utility and the people suffering the effects of the utility’s pollution can bargain, then making the utility legally liable for the damages from its pollution will
a. Increase the amount of pollution reduction by decreasing the marginal cost and increasing the marginal benefit of pollution reduction to the utility
b. Not change the amount of pollution reduction because the marginal benefit and marginal cost of pollution reduction will not change
c. Increase the amount of pollution reduction by increasing the marginal cost of pollution reduction to the utility
d. Increase the amount of pollution reduction by increasing the marginal benefit of pollution reduction to the victims of pollution
e. Increase the amount of pollution reduction by increasing the marginal benefit of pollution reduction to the utility