When the recipient of an externality pays its producer to reduce production, the externality has been solved by:
A)internalization.
B)assigning property rights.
C)negotiation.
D)regulation.

Question

Quizplus · Accepted Answer

Negotiation between the producer and the recipient of an externality to reduce production and thereby mitigate the externality's impact is a direct application of the Coase Theorem. This theorem suggests that if transaction costs are low and property rights are clearly defined, externalities can be efficiently resolved through bargaining or negotiation between the affected parties.

When the Recipient of an Externality Pays Its Producer to Reduce