The Coase theorem asserts that, in the presence of externalities,
A)private economic actors sometimes can reach a bargain that produces an efficient outcome.
B)private economic actors always can reach a bargain that makes everyone better off.
C)private solutions cannot be very effective.
D)corrective taxes cannot be very effective.

Question

Quizplus · Accepted Answer

The Coase theorem states that, under certain conditions, private economic actors can reach a bargain that leads to an efficient outcome, without the need for government intervention. This is possible when the parties have well-defined property rights and low transaction costs, allowing them to negotiate and internalize the external costs or benefits. However, the outcome may not necessarily make everyone better off, as one party may have to compensate the other to change their behavior. Thus, option B is incorrect. Option C is also incorrect, as private solutions can be effective if the conditions of the Coase theorem are met. Option D is partly incorrect, as corrective taxes can be effective if they are set at the right level to achieve the efficient equilibrium, but they are not always necessary if private bargaining can achieve the same result.

The Coase Theorem Asserts That, in the Presence of Externalities