According to the Coase theorem, externality problems may be solved if the parties involved can negotiate.Which of the following is also needed?
A)clearly defined bargaining costs
B)enforceable bargaining costs
C)clearly defined, enforceable property rights and low bargaining costs
D)a property right that cannot be bought or sold
E)government regulation

Question

Quizplus · Accepted Answer

Clear and enforceable property rights ensure that parties know what they own and have the legal ability to negotiate. Low bargaining costs make it easier and less expensive for parties to negotiate without relying on government regulation. A property right that cannot be bought or sold (option D) would not help solve the externality problem as it would not facilitate negotiation between parties.

According to the Coase Theorem, Externality Problems May Be Solved