Your roommate has the right to play her stereo during the day. But you find the best time to study is during the day, and the stereo playing makes it hard for you to concentrate. You tell your roommate that you will do her laundry every week if she does not play the stereo during the day and she agrees to this. This is an example of

Question

Quizplus · Accepted Answer

This is an example of the Coase theorem, which suggests that if property rights are clearly defined and transaction costs are low, parties can negotiate and reach an efficient outcome regardless of the initial allocation of property rights. In this situation, the initial right to play the stereo during the day was with the roommate, but through negotiation, the right was transferred to the other party in exchange for something of value (doing laundry).

Your Roommate Has the Right to Play Her Stereo During