The Coase theorem will apply only if
A) the courts can be used to determine the amount of compensation that must be made to the damaged party.
B) the amount of compensation that must be made to the damaged party is small.
C) the number of people involved is small.
D) an individual who is not affected by the externality can negotiate a settlement between the parties imposing the externality and the parties that are harmed by the externality.

Question

Quizplus · Accepted Answer

The Coase theorem applies most effectively when the number of parties involved is small, as this facilitates negotiation and agreement on externalities and their compensation.

The Coase Theorem Will Apply Only If