The Coase theorem says that private bargains can ensure an efficient market equilibrium even when externalities exist if:
A) the government does not involve itself in the process.
B) the market is sufficiently competitive.
C) the number of market participants is large.
D) transaction costs are low and property rights are clearly defined.

Question

Quizplus · Accepted Answer

The Coase theorem states that private parties can arrive at an efficient solution to externalities, as long as property rights are well-defined and transaction costs are low. In this way, private bargaining can internalize the externalities. Options A, B, and C are not essential conditions for the Coase theorem to hold.

The Coase Theorem Says That Private Bargains Can Ensure an Efficient