In which case is the Coase theorem most likely to work to solve an externality
A)Richard is annoyed because his roommate smokes.
B)Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico.
C)Car exhaust in a small town is making one of its residents ill.
D)Industrialization around the world is causing global warming.

Question

Quizplus · Accepted Answer

The Coase theorem is most likely to work in situations where there are clearly defined property rights and low transaction costs. In the case of Richard and his roommate, the number of parties involved is small, making negotiation feasible.

In Which Case Is the Coase Theorem Most Likely to Work