The Coase theorem suggests that private solutions to an externality problem
A)are effective under all conditions.
B)will usually allocate resources efficiently if private parties can bargain without cost.
C)are only efficient when there are negative externalities.
D)may not be possible because of the distribution of property rights.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that private solutions to an externality problem will usually allocate resources efficiently if private parties can bargain without cost. This means that if property rights are well-defined and transaction costs are low, private parties can negotiate and reach an efficient outcome without government intervention. However, the Coase theorem does not necessarily guarantee an efficient outcome in all cases, as there may be barriers to bargaining or limitations on property rights. Positive externalities may also present challenges for private solutions.

The Coase Theorem Suggests That Private Solutions to an Externality