There are two divorce laws, A and B. Under A, it takes only one person to agree to a divorce and the divorce is granted. Under B, it takes two persons to agree to a divorce before it is granted. According to Coase,
A)there will be the same number of divorces under both laws if transaction costs are zero.
B)there will be more divorces under law A.
C)there will be more divorces under law B.
D)taxes should be imposed on those parties who seek divorces.
E)subsidies should be granted to those persons who unwillingly get divorces.

Question

Quizplus · Accepted Answer

According to Coase Theorem, if transaction costs are zero, parties can negotiate and reach an agreement that leads to the efficient outcome regardless of the initial allocation of rights. Therefore, the number of divorces would be the same under both laws as parties would negotiate to the efficient outcome.

There Are Two Divorce Laws, a and B