The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently
A)even if private parties experience substantial costs of bargaining.
B)even if the initial distribution of legal rights is skewed in favor of some private parties over others.
C)only when there is a large number of private parties that engage in bargaining.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The Coase theorem assumes that property rights are well-defined and transferable and that transaction costs are low. However, if the initial distribution of legal rights is skewed in favor of some private parties over others, then the bargaining power will also be skewed, and some parties may be able to exploit others. In such cases, the private market may not solve the externality problem efficiently.

The Coase Theorem Asserts That the Private Market Will Always