Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's Theorem,one necessary condition to alleviate the externality is that
A) Al is fined by the government.
B) Al has the right to leave trash and Bert cannot do anything about it.
C) Bert has the right to a clean park and Al cannot leave trash.
D) Either Al or Bert owns the park.

Question

Quizplus · Accepted Answer

Coase's Theorem suggests that if transaction costs are low, the initial allocation of property rights between Al and Bert does not matter. In this case, if either Al or Bert owns the park, they can negotiate to find a mutually beneficial solution to the trash problem. If Al owns the park, Bert can offer to pay him to keep it clean. If Bert owns the park, he can ask Al to stop leaving trash or offer to pay him to clean it up. In either case, the outcome will be efficient and mutually beneficial.

Suppose Two Neighbors Share a Park