According to the Coase theorem, in the presence of externalities
A)private parties can bargain to reach an efficient outcome.
B)government assistance is necessary to reach an efficient outcome.
C)the assignment of legal rights can prevent externalities.
D)the initial distribution of property rights will determine the efficient outcome.

Question

Quizplus · Accepted Answer

The Coase theorem states that when transaction costs are low, private parties can bargain and reach an efficient outcome regardless of the initial assignment of property rights. Therefore, choice A is correct. B is incorrect, as government intervention is not necessary under the Coase theorem. C is also incorrect, as legal rights alone cannot prevent externalities but can help facilitate bargaining. D is incorrect, as the initial distribution of property rights is not the determining factor in reaching an efficient outcome.

According to the Coase Theorem, in the Presence of Externalities