Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.
A)necessary; equitable
B)necessary; efficient
C)not necessary; equitable
D)not necessary; efficient

Question

Quizplus · Accepted Answer

The Coase theorem suggests that in the absence of transaction costs and with well-defined property rights, the efficient level of pollution can be achieved through negotiations between the polluter and the affected parties, regardless of who is initially assigned liability. Therefore, government action may not be necessary to achieve an efficient outcome. However, in this scenario, the polluter is not liable for the damages it causes, making it impossible for the affected parties to negotiate for a reduction in pollution. Therefore, government action may not be necessary to achieve an equitable outcome. The only necessary action in this scenario would be to assign liability to the polluter, as without it, the Coase theorem cannot be applied.

Consider a Situation in Which a Utility Company Emits High