In which of these situations would the Coase theorem be MOST likely to work?
A) A thousand firms use a lake, there are no other users, all their costs could be reduced somewhat by polluting, but all would have lower water intake costs if the lake were clean.
B) A group of nine firms use a lake, there are no other users, all their costs could be reduced somewhat by polluting, but all would have lower water intake costs if the lake were clean.
C) Worldwide deep sea fishing rights need to be negotiated among thousands of fishermen from different countries.
D) One hundred and fifty nations need to come to an accord about CFC generation to combat ozone depletion.
E) A group of chemical firms high upstream on the Mississippi River have emissions that affect not only communities downstream along the river, but around the Gulf of Mexico as well.

Question

Quizplus · Accepted Answer

The Coase theorem is most likely to work when there are a small number of parties involved, as in situation B where only nine firms use the lake. This would make negotiations easier and a solution more feasible. In situation A, with a thousand firms, it would be much more difficult to coordinate negotiations and enforce agreements. Similarly, situation C involves a vast number of parties and countries, making negotiations more complicated. Situation D also involves many countries and would require a significant level of international cooperation. Situation E involves multiple communities and states, making negotiations more complex.

In Which of These Situations Would the Coase Theorem Be