A battery acid producer pollutes the water upstream from the Polar Bear Club,a swimming club.If transactions costs are low,the quantity of pollution will be efficient
A)if swimming club memberships are subsidized.
B)only if the battery acid producer moves downstream.
C)only if water property rights are assigned to the producer.
D)only if water property rights are assigned to the Polar Bear Club.
E)if water property rights are assigned either to the producer or to the Polar Bear Club.

Question

Quizplus · Accepted Answer

If water property rights are assigned either to the producer or to the Polar Bear Club, the party who values the water the most will be able to purchase the right to use it without causing pollution. This creates a financial incentive for both parties to negotiate an efficient agreement, ensuring that the quantity of pollution will be minimized. Subsidizing swimming club memberships or requiring the battery acid producer to move downstream do not address the underlying problem of assigning property rights and do not provide an efficient solution.

A Battery Acid Producer Pollutes the Water Upstream from the Polar