According to the Coase theorem, private parties can solve the problem of externalities if
A)the cost of bargaining is small.
B)property rights aren't clearly defined.
C)the number of parties involved is sufficiently large.
D)the initial distribution of legal rights favors the person being adversely affected by the externality.

Question

Quizplus · Accepted Answer

The Coase theorem posits that if transaction costs are low and property rights are clearly defined, private parties can negotiate to solve the problem of externalities on their own, regardless of the initial distribution of rights.

According to the Coase Theorem, Private Parties Can Solve the Problem