The Coase solution to the problem of externalities
A)applies in every situation where externalities are present
B)only applies to activities that generate positive externalities
C)only works under perfect competition
D)only works when bargaining costs are low
E)can lead to an increase in the common pool problem

Question

Quizplus · Accepted Answer

The Coase solution to the problem of externalities only works when bargaining costs are low. Coase argued that if transaction costs are low and property rights are clearly defined, then the affected parties can negotiate and bargain with each other to internalize the externalities, resulting in an efficient outcome. However, if bargaining costs are high, then it may not be feasible to negotiate a solution, and the externality may persist.

The Coase Solution to the Problem of Externalities