A lawsuit seeking compensation for damage from pollution:
A) will ruin any chances the Coase theorem has of working to avoid the situation in the first place.
B) is a substitute for bargaining, but an inefficient one.
C) is a substitute for bargaining, and it can lead to the efficient solution.
D) is preferable to switching the property rights between the parties.
E) is how the Coase theorem was meant to work in the first place.

Question

Quizplus · Accepted Answer

A lawsuit seeking compensation for damage from pollution can serve as a substitute for bargaining between the parties involved. According to the Coase theorem, if property rights are clearly defined and transaction costs are low, parties can negotiate to reach an efficient outcome regarding the allocation of resources and dealing with externalities like pollution. A lawsuit can mimic this bargaining process by involving a legal framework to determine compensation, potentially leading to an efficient solution similar to what could have been achieved through direct negotiation.

A Lawsuit Seeking Compensation for Damage from Pollution