The Coase theorem states that
A)taxes are an efficient way for governments to remedy negative externalities.
B)subsidies are an efficient way for governments to remedy positive externalities.
C)industrial policies encourage technology spillovers.
D)in the absence of transaction costs, private parties can solve the problem of externalities on their own.

Question

Quizplus · Accepted Answer

The Coase theorem states that in the absence of transaction costs, private parties can solve the problem of externalities on their own. This means that without government intervention, individuals can negotiate and find mutually beneficial solutions to externalities. Taxes and subsidies (choices A and B) are forms of government intervention, so they do not align with the Coase theorem. Industrial policies (choice C) may encourage technology spillovers, but they are not directly related to the Coase theorem.

The Coase Theorem States That