Assume that your roommate is very messy.Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you.The Coase theorem would suggest that an efficient solution would be for you to
A) pay your roommate at least $50 but no more than $100 to clean up after herself.
B) pay your roommate at least $101 to clean up after herself.
C) charge your roommate at least $50 to have you clean up after her.
D) charge your roommate at least $100 but no more than $200 to keep you from complaining about the mess.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that if property rights are well-defined and transaction costs are low, then parties can negotiate an efficient outcome regardless of how property rights are initially assigned. In this case, the roommate has the property right to be messy, which is giving her a benefit of $50. However, her mess is imposing a cost of $100 on the other roommate. If the other roommate values a clean living space more than $50, then it would make sense for her to pay the messy roommate to clean up after herself. Since the cost to the other roommate is $100, the payment to the messy roommate should be at least $50 but no more than $100 to ensure an efficient outcome. Therefore, option A is the best choice.

Assume That Your Roommate Is Very Messy