Assume that your roommate,Vanessa,is very messy,and according to campus policy,you have a right to live in an uncluttered apartment.Suppose she gets a $200 benefit from being messy but imposes a $100 cost on you.What would the Coase theorem suggest would be an efficient solution for your roommate
A)to pay you $99.99 to live with the clutter
B)to pay you at least $100 but less than $200 to live with the clutter
C)to demand payment of at least $100 but no more than $200 to clean up after herself
D)to demand payment of $200 to clean up after herself

Question

Quizplus · Accepted Answer

According to the Coase theorem, if property rights are well-defined and transaction costs are low, then the parties can negotiate and come up with an efficient solution regardless of who has the initial property rights. In this case, Vanessa's messy behavior imposes a negative externality on you, and you have a right to live in an uncluttered apartment. The efficient solution would be for Vanessa to compensate you for the cost she imposes on you, which is $100. She would not pay more than the benefit she gets from being messy, which is $200. Therefore, option B suggests that Vanessa should pay you at least $100 but less than $200 to live with the clutter, which is the efficient solution according to the Coase theorem.

Assume That Your Roommate,Vanessa,is Very Messy,and According to Campus Policy,you