Suppose that your roommate is very untidy. Suppose she/he gets a $100 benefit from being messy but imposes a $200 cost on you. (Assume that there are no regulations against untidiness in your living quarters.) The Coase Theorem would suggest that an efficient solution can be reached where:
A)you pay your roommate at least $100 but no more than $200 to clean up after her/himself
B)you pay your roommate at least $201 to clean up after her/himself.
C)you continue to live with your untidy roommate until you are able to make other living arrangements elsewhere.
D)your roommate pays you at least $100 to have you clean up after her/him.

Question

Suppose that your roommate is very untidy. Suppose she/he gets a $100 benefit from being messy but imposes a $200 cost on you. (Assume that there are no regulations against untidiness in your living quarters.) The Coase Theorem would suggest that an efficient solution can be reached where:
A)​you pay your roommate at least $100 but no more than $200 to clean up after her/himself
B)​you pay your roommate at least $201 to clean up after her/himself.
C)​you continue to live with your untidy roommate until you are able to make other living arrangements elsewhere.
D)​your roommate pays you at least $100 to have you clean up after her/him.

Quizplus · Accepted Answer

The Coase Theorem suggests that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In this scenario, paying your roommate between $100 (the benefit they get from being messy) and $200 (the cost imposed on you) to clean up is an efficient solution that compensates them for their loss of benefit while also addressing the cost imposed on you.

Suppose That Your Roommate Is Very Untidy