Regulation is necessary when transactions costs are low enough to allow bargaining between a polluter and a victim.

Question

Quizplus · Accepted Answer

According to the Coase Theorem, when transaction costs are low, parties can negotiate solutions to externalities (like pollution) without the need for government intervention or regulation. Regulation becomes more necessary when transaction costs are high, making bargaining difficult.

Regulation Is Necessary When Transactions Costs Are Low Enough to Allow