If the costs of negotiation are small but not negligible,
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

When the costs of negotiation are small but not negligible, an efficient outcome results if the liability is placed on the party with the lowest cost of prevention. This way, the party can take preventive measures at a lower cost than the other party, resulting in a more efficient outcome without government intervention.

If the Costs of Negotiation Are Small but Not Negligible