Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,one necessary condition to alleviate the externality is that

Question

Quizplus · Accepted Answer

Coase's theorem states that if property rights are clearly defined and transaction costs are low, then the affected parties can negotiate and reach an efficient solution to the externality, regardless of who initially holds the property rights. In this case, if either Al or Bert owns the park, they can negotiate to reach an efficient solution to the trash problem. If Al owns the park, then he can be compensated by Bert for not leaving trash, or if Bert owns the park, he can pay Al to clean up the trash. Thus, option D is the best choice. Options A, B, and C do not reflect the Coase theorem framework.

Suppose Two Neighbors Share a Park