The Coase theorem argues that the assignment of property rights will generate an efficient solution to the problem of _____
A)arbitrage, as long as bargaining costs are small.
B)negative externalities, as long as bargaining costs are small.
C)negative externalities, as long as bargaining costs are high.
D)moral hazard, as long as bargaining costs are small.
E)adverse selection, as long as bargaining costs are small.

Question

Quizplus · Accepted Answer

The Coase theorem states that if property rights are well-defined and transaction costs are low, then parties will negotiate and arrive at an efficient outcome, even in cases of negative externalities. This means that the efficient solution to the problem of negative externalities will be achieved through private bargaining, as long as transaction costs are small. Therefore, the most appropriate answer is option B.

The Coase Theorem Argues That the Assignment of Property Rights