What does the Coase theorem suggest about private solutions to the externality problem
A)They will always allocate resources efficiently if private parties can bargain without cost.
B)They are effective under all conditions.
C)They are only efficient when there are negative externalities.
D)They may not be possible because of the distribution of property rights.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that private solutions can allocate resources efficiently if private parties can bargain without cost. This means that if property rights are clearly defined and transaction costs are low, then private parties can come to an agreement that is mutually beneficial and efficient in terms of resource allocation. Option B and C are incorrect because private solutions may not be effective under all conditions and may only be efficient when there are either negative or positive externalities. Option D is partially correct, as the distribution of property rights can affect the feasibility of private solutions, but it is not the only factor determining their effectiveness.

What Does the Coase Theorem Suggest About Private Solutions to the Externality