Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.

Question

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.
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Quizplus · Accepted Answer

According to the Coase Theorem, if transaction costs are negligible and property rights are clearly defined, parties will negotiate to reach a mutually beneficial and efficient outcome regardless of the initial allocation of rights. In this case, Sophia values the seat not being reclined more than Gabriel values his right to recline. Therefore, it's efficient for her to compensate him to not recline, and $15 is an amount that benefits both, making it a Coasean solution.

​Sophia Sits Behind Gabriel on an Airplane

Sophia Sits Behind Gabriel on an Airplane