The Coase theorem implies that when bargaining between two parties to an externality is possible, social efficiency can be achieved.

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The Coase theorem states that when property rights are well-defined and bargaining costs are low, the parties affected by an externality can negotiate a solution that is economically efficient, regardless of the initial allocation of property rights. This solution represents the efficient outcome for society because it maximizes total surplus and minimizes the costs of the externality.

The Coase Theorem Implies That When Bargaining Between Two Parties