The Coase theorem posits that externality problems can be solved without government intervention
A) when transaction costs are low and property rights are clearly defined.
B) when trading in tradeable allowances occurs.
C) if markets can reach the efficient quantity and if transaction costs exceed the deadweight loss caused in the market.
D) only rarely, that in general markets cannot maximize social surplus.

Question

Quizplus · Accepted Answer

The Coase theorem states that if transaction costs are low and property rights are clearly defined, then parties involved in an externality problem can negotiate and reach an efficient outcome without the need for government intervention. This is because parties can internalize the external costs and benefits through bargaining and come up with a mutually beneficial solution. However, if transaction costs are high, government intervention may be necessary to overcome the barriers to bargaining and achieve an efficient outcome.

The Coase Theorem Posits That Externality Problems Can Be Solved