The Coase theorem does not hold when:
A)distortionary taxes are present
B)income effects are positive.
C)transaction costs are positive.
D)information costs are zero.

Question

Quizplus · Accepted Answer

The Coase theorem assumes zero transaction costs. When transaction costs are positive, bargaining may not result in an efficient allocation of resources, and the outcome may depend on the initial entitlements. Therefore, the Coase theorem does not hold when transaction costs are positive.

The Coase Theorem Does Not Hold When