The Coase theorem argues that the assignment of property rights will generate an efficient solution to the problem of
A)positive externalities as long as bargaining costs are small
B)negative externalities as long as bargaining costs are small
C)negative externalities as long as bargaining costs are great
D)any type of market failure
E)any type of market failure that involves high transaction costs

Question

Quizplus · Accepted Answer

The Coase theorem argues that if property rights are assigned clearly, parties will negotiate with each other to achieve an efficient outcome. This is especially relevant in cases of negative externalities, where parties can negotiate to reduce the harm caused by the externality. The theorem assumes that bargaining costs are small, as in the case of negative externalities, where only a few parties are affected. Therefore, the best choice is B, which states that the Coase theorem applies to negative externalities as long as bargaining costs are small.

The Coase Theorem Argues That the Assignment of Property Rights