According to the Coase theorem, when the parties affected by externalities can negotiate costlessly with one another
A)An efficient outcome results if the liability is placed on the party with the lowest cost of prevention
B)An efficient outcome results no matter how the law assigns responsibility
C)Efficiency cannot be reached without government intervention
D)The correct way to deal with an externality is to tax it

Question

Quizplus · Accepted Answer

According to the Coase theorem, when the parties affected by externalities can negotiate costlessly with one another, an efficient outcome results no matter how the law assigns responsibility. This is because in such a scenario, the parties will bargain to reach an efficient outcome, regardless of who is assigned the liability.

According to the Coase Theorem, When the Parties Affected by Externalities