The distribution of rights among parties affected by an externality:
A)hinders the ability of private parties to properly price the externality
B)enhances the market incentive to reach an efficient solution
C)determines who bears the cost of the solution but has no effect on the efficiency of this outcome
D)affects the efficiency of the outcome, but does not determine who bears the cost

Question

Quizplus · Accepted Answer

According to the Coase Theorem, if property rights are well-defined and transaction costs are low, the allocation of rights determines who bears the cost, but the efficiency of the outcome remains unaffected.

The Distribution of Rights Among Parties Affected by an Externality