Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to
A)stop her messy habits or else move out.
B)pay you at least $60 but less than $80 to live with the clutter.
C)continue to be messy and force you to move out.
D)demand payment of at least $60 but no more than $80 to clean up after herself.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that if property rights are clearly defined and transaction costs are low, the parties involved can negotiate an efficient solution to an externality problem without the need for government intervention. In this case, if the messy roommate receives a benefit of $80 from her messy habits but imposes a cost of $60 on the other roommate, then it would be efficient for the messy roommate to pay the other roommate at least $60 but less than $80 to continue living with the clutter. The messy roommate would still receive a net benefit and the other roommate would be compensated for the cost they incur.

Assume That Your Roommate Is Very Messy