The major implication of the Coase theorem is that
A) government regulation is necessary to solve externalities.
B) competitive pressures will eliminate externalities.
C) resolving externalities is more costly than allowing them.
D) individuals can solve many externalities if they can buy and sell the right to commit the externality.
E) governmental solutions to externalities can only fail.

Question

Quizplus · Accepted Answer

The Coase theorem states that if property rights are well-defined and transaction costs are low, then individuals can solve many externalities if they can buy and sell the right to commit the externality. This means that government regulation may not be necessary and that competitive pressures may not eliminate externalities on their own. However, there may be situations where resolving externalities through bargaining is more costly than simply allowing them to exist. The theorem does not suggest that governmental solutions to externalities can only fail, but rather that the private market can be an effective way of addressing externalities in some cases.

The Major Implication of the Coase Theorem Is That