The proposition that if private parties can bargain without cost over the allocation of resources,they can solve the problem of externalities on their own,is called
A)the transaction cost theorem.
B)a corrective tax.
C)the externality theorem.
D)the Coase theorem.

Question

Quizplus · Accepted Answer

The proposition described in the question is known as the Coase theorem, named after economist Ronald Coase. It suggests that in the absence of transaction costs, private parties can negotiate and allocate resources in a way that solves the problem of externalities. Therefore, the correct choice is D, the Coase theorem.

The Proposition That If Private Parties Can Bargain Without Cost