Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?
A) One neighbor lets his dog run through another neighbor's garden, damaging her flowers.
B) One neighbor doesn't mow her yard.
C) One neighbor plays his music loudly.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

The Coase theorem predicts that private parties can arrive at an efficient solution as long as transaction costs are small. In each of the scenarios given, the affected parties could negotiate a solution that would result in both parties being better off or at least not worse off. For example, in scenario A, the first neighbor could pay the second neighbor for the damage caused by the dog or could agree to keep the dog away from the second neighbor's garden. In scenario B, the first neighbor could pay the second neighbor to mow their yard or could agree to keep it maintained. In scenario C, the first neighbor could agree to keep their music at a reasonable volume.

Assuming Transaction Costs Are Small,the Coase Theorem Would Predict That