The Coase theorem suggests that private solutions to the externality problem:
A)will always allocate resources efficiently if private parties can bargain without cost
B)are effective under all conditions
C)are only efficient when there are negative externalities
D)may not be possible because of the distribution of property rights

Question

Quizplus · Accepted Answer

The Coase theorem suggests that private solutions to the externality problem will always allocate resources efficiently if private parties can bargain without cost. This is because, in the absence of transaction costs, negotiations between parties will lead to an efficient outcome regardless of who holds the property rights. The Coase theorem applies to both positive and negative externalities.

The Coase Theorem Suggests That Private Solutions to the Externality