Assume that your roommate is very messy.Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you.The Coase theorem would suggest that an efficient solution would be for you to
A)pay your roommate at least $100 but no more than $200 to clean up after herself.
B)pay your roommate at least $201 to clean up after herself.
C)charge your roommate at least $100 to have you clean up after her.
D)charge your roommate at least $200 but no more than $300 to keep you from complaining about the mess.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that if transaction costs are low and property rights are clearly defined, then an efficient solution can be reached through bargaining between the parties involved. In this scenario, the messy roommate enjoys a benefit of $100 from being messy, while imposing a cost of $200 on the other roommate. If the tidy roommate were to pay the messy roommate more than $100 to clean up after herself, she would end up worse off than before. Therefore, the efficient solution would be for the tidy roommate to pay the messy roommate an amount between $100 and $200 to clean up after herself. This way, both parties benefit from the transaction, and the tidy roommate gets to enjoy a cleaner living space.

Assume That Your Roommate Is Very Messy