Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,
A)an efficient solution can be reached only if property rights are assigned to the victims of the pollution.
B)an efficient solution can be reached only if property rights are assigned to the polluters.
C)an efficient solution can be reached regardless of the initial assignment of property rights.
D)government intervention is critical to reach an efficient solution.

Question

Quizplus · Accepted Answer

The Coase theorem states that if property rights are well-defined, transaction costs are low, and both parties are willing to bargain, then an efficient solution can be reached regardless of the initial assignment of property rights. Therefore, the efficient solution can be reached even if the property rights are initially assigned to the polluters. No need for government intervention if these conditions are met.

Suppose a Negative Externality Exists in a Market