According to the Coase theorem, which situation would MOST likely result in a private bargaining solution and yield an efficient market?
A) A railroad train that runs the entire East Coast regularly emits both pollution and loud noises for people living near the tracks.
B) People who get flu shots actually end up decreasing the spread of the virus.
C) Your neighbor's dog routinely gets out of his yard and does his "business" in your yard.
D) A company recently turned an abandoned factory at the end of your street into a paper mill that now stinks up the entire town.

Question

Quizplus · Accepted Answer

The situation with the neighbor's dog is a classic example of a private bargaining problem, where the neighbor can compensate the affected party (you) for the negative externality of the dog's waste. As a result, it is most likely to result in a private bargaining solution and an efficient market. The other three scenarios are more complex and involve multiple parties, making it difficult for private bargaining to work effectively.

According to the Coase Theorem, Which Situation Would MOST Likely