A large farming operation which uses a potent fertiliser is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be
A) inefficient if the farming operation owns the river.
B) efficient if either the farming operation or the trout farmer owns the river.
C) always inefficient.
D) efficient only if the trout farmer owns the river.

Question

Quizplus · Accepted Answer

According to the Coase Theorem, if property rights are clearly defined and transaction costs are low, parties can negotiate to reach an efficient outcome regarding the use of resources, regardless of who owns the rights. This means that whether the farming operation or the trout farmer owns the river, they can negotiate a level of pollution that is efficient.

A Large Farming Operation Which Uses a Potent Fertiliser Is