For the Coase theorem to work, the costs to negotiate and enforce a bargain must approach zero.

Question

Quizplus · Accepted Answer

The Coase theorem posits that if trade in an externality is possible and there are no transaction costs, parties will negotiate to solve the problem efficiently regardless of the initial allocation of rights. Thus, for the theorem to work as stated, the costs to negotiate and enforce a bargain must indeed approach zero.

For the Coase Theorem to Work, the Costs to Negotiate