A large farming operation which uses a potent fertilizer 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) efficient only if the trout farmer owns the river.
B) inefficient if the farming operation owns the river.
C) efficient if either the farming operation or the trout farmer own the river.
D) always inefficient.

Question

Quizplus · Accepted Answer

If property rights are well-defined and transaction costs are low, the Coase Theorem suggests that parties will negotiate to reach an efficient outcome regardless of who owns the river.

A Large Farming Operation Which Uses a Potent Fertilizer Is