The distribution of surplus gained from private parties solving an externality problem on their own,as described by the Coase theorem,is dependent on:
A) who has more power to see to enforcement.
B) which party has more negotiating power or wealth.
C) where the initial rights of the parties lie.
D) None of these statements is true.

Question

Quizplus · Accepted Answer

The Coase theorem states that as long as property rights are clearly defined, people can always negotiate towards an efficient outcome of an externality problem, regardless of who initially holds the property rights. Therefore, the distribution of surplus gained depends on where the initial rights of the parties lie.

The Distribution of Surplus Gained from Private Parties Solving an Externality