The Coase Theorem states that:
A)government should levy excise taxes on firms which generate spillover or external costs.
B)taxes should be levied such that they change private behavior as little as possible.
C)under the right conditions, bargaining between private parties will remedy externality problems without the need for government intervention.
D)trading of votes to secure favorable voting outcomes may increase efficiency.

Question

Quizplus · Accepted Answer

The Coase Theorem posits that in the presence of an externality (such as pollution), private parties can negotiate and come to a mutually beneficial agreement that remedies the problem, without the need for government intervention, as long as property rights are clearly defined and transaction costs are low. Thus, choice (C) is the correct option.

The Coase Theorem States That