The Coase theorem is significant because it
A)implies that no transaction costs are associated with solving externalities.
B)shows that property rights can be assigned.
C)shows that under certain conditions externalities can be corrected in the market without resorting to nonmarket means.
D)shows that property rights should never be assigned.

Question

Quizplus · Accepted Answer

The Coase theorem states that under certain conditions, externalities can be corrected in the market without resorting to nonmarket means. This means that property rights can be assigned and that the transaction costs associated with solving externalities can be overcome through negotiation and bargaining between parties. Option A is incorrect as the Coase theorem assumes the presence of transaction costs. Option B is partially correct as the Coase theorem supports the assignment of property rights, but it does not imply that it can always be done. Option D is incorrect as it contradicts the central message of the Coase theorem.

The Coase Theorem Is Significant Because It