Assume that your housemate is very messy. Suppose he gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for your housemate to:
A) stop his messy habits or force him to move out
B) pay you at least $100 but less than $200 to live with the clutter
C) continue to be messy and force you to make other living arrangements elsewhere
D) demand payment of at least $100 but no more than $200 to clean up after himself

Question

Quizplus · Accepted Answer

According to the Coase theorem, if property rights are clearly defined and transactions costs are low, then bargaining between the parties will lead to an efficient outcome regardless of how the rights are initially assigned. In this case, the messy housemate has a benefit of $200 from being messy, while imposing a cost of $100 on the other person. Therefore, if the messy housemate pays the other person at least $100 but less than $200 to live with the clutter, both parties will be better off than they were before. This solution is efficient as long as the transaction costs of bargaining are low.

Assume That Your Housemate Is Very Messy