Economics Government Policy of Compensation to Help Solve the Market Failure

Question:-

Assume for simplicity that the main third party affected is the tourism industry in Mauritius. illustrate and critically evaluate the government policy of compensation to help solve the market failure in this case.

Answer:-

About 1000 tons of oil has been washed into the sea due to the oil leak in Mauritius, Which has severely damaged the marine eco system. This oil spill is being considered as an environmental disaster. Many dolphins have died in Mauritius beach.  The fisheries industries have suffered, the tourism industry has suffered due to the pandemic of corona virus. This can be considered as market failure. Mauritius has sought compensation from Nagashiki shipping company. This compensation is mentioned in the coase theorem where property rights are clearly defined. It is suffered by third-party as a consequence of economic transactions.

According to coase as long as one party has established the property rights, bargaining process can be start to lead an agreement in which externalities are taken into account. According to maritime law , Mauritius can eligible to get $ 1 billion compensation for this environmental disaster from Japan. Since Mauritius tourism industry has been affected by oil spill pollution, Mauritius has claimed compensations.