Editing Coase theorem (section)

===Damage from water runoff===
Two property owners own land on a mountainside. Property Owner A's land is upstream from Owner B and there is significant, damaging runoff from Owner A's land to Owner B's land. Four scenarios are considered:
# If a cause of action exists (i.e. B could sue A for damages and win) and the property damage equals $100 while the cost of building a wall to stop the runoff equals $50, the wall will probably exist. Owner A will spend $50 and build the wall in order to prevent a court case where B could claim $100 in damages.
# If a cause of action exists and the damage equals $50 while the cost of a wall is $100, the wall will not exist. Owner B may sue, win the case and the court will order Owner A to pay B $50. This is cheaper than actually building the wall. Courts [[Specific performance|rarely order persons to do or not do actions]]: they prefer monetary awards.
# If a cause of action does not exist, and the damage equals $100 while the cost of the wall equals $50, the wall will exist. Even though B cannot win the lawsuit, he or she will pay A $50 to build the wall because the wall is less costly than the damages from the runoff.
# If a cause of action does not exist, and the damage equals $50 while the wall will cost $100, the wall will not exist. B cannot win the lawsuit and the economic realities of trying to get the wall built are prohibitive.

The Coase theorem considers all four of these outcomes logical because the economic incentives will be stronger than legal incentives. Pure or traditional legal analysis will expect that the wall will exist in both scenarios where B has a cause of action and that the wall will never exist if B has no cause of action.

# a Court of Law orders owner A to limit its operations.
# a Court of Law orders owner A to compensate Owner B.
# a Court of Law pays Owner A the gains it makes from causing the runoff.
# a Court of Law compensates Owner B the losses it makes from bearing the runoff.
# Owner A pays Owner B the losses it makes from bearing the runoff.
# Owner B pays Owner A the gains it makes from causing the runoff.