Under the Coase theorem, a private solution to an externality yields _______ amount of efficiency and _______ distribution of surplus as compared to a government solution.
A)the same; the same
B)the same; a different
C)a different; the same
D)a different; a different

Question

Quizplus · Accepted Answer

The Coase theorem suggests that if transaction costs are low and property rights are well-defined, private negotiations will lead to an efficient allocation of resources, similar to a government solution. However, the distribution of surplus may differ based on the initial allocation of property rights.

Under the Coase Theorem, a Private Solution to an Externality