A copper ore refiner pollutes the water upstream from a brewery. These are the only two parties involved. The transactions costs of reaching an agreement between the refinery and the brewery are low. The amount of water pollution will be at the efficient level
A) only when the property right to the stream is assigned to the ore refinery.
B) only when the property right to the stream is assigned to the brewery.
C) when the property right to the stream is assigned to either the refinery or to the brewery.
D) when no one has clear property rights.

Question

Quizplus · Accepted Answer

When transaction costs are low, the Coase Theorem suggests that the efficient outcome will be reached regardless of who holds the property rights, as the parties can negotiate to correct the externality.

A Copper Ore Refiner Pollutes the Water Upstream from a Brewery