Suppose both a chemical company and a commercial fishery operate on the same river. According to the Coase theorem the socially efficient level of emissions can be reached through bargaining between the two parties if ________ has the right to use the river.

Question

Quizplus · Accepted Answer

The Coase theorem states that if property rights are well-defined and transaction costs are low, then the socially efficient outcome can be reached through bargaining between the parties regardless of who initially owns the property. Therefore, either the chemical company or the fishery can have the right to use the river and negotiate with the other party to reach an efficient level of emissions. The regulator is not necessary in this case as the parties can negotiate the solution themselves.

Suppose Both a Chemical Company and a Commercial Fishery Operate