The theory that private negotiations have the potential to make some people better off without making anyone worse off when negative externalities are present is known as:
A)the Negative Externality Theorem.
B)the Sexton Theorem.
C)the Coase Theorem.
D)the Abatement Theorem.

Question

The theory that private negotiations have the potential to make some people better off without making anyone worse off when negative externalities are present is known as:
A)​the Negative Externality Theorem.
B)​the Sexton Theorem.
C)​the Coase Theorem.
D)​the Abatement Theorem.

Quizplus · Accepted Answer

The theory described is known as the Coase Theorem, which states that if property rights are well-defined and transaction costs are low, private bargaining can lead to efficient outcomes even in the presence of negative externalities. This means that those who are negatively affected by the externality can be compensated by those who are creating the externality, resulting in a socially optimal outcome that makes everyone better off.

The Theory That Private Negotiations Have the Potential to Make