Which of the following statements is most consistent with Ronald Coase's theory of externalities?
A)"If a factory pollutes,a tax imposed on the polluter by the government that is equal to the unit cost of the damage from the pollution brings about an efficient outcome."
B)"When a firm emits pollutants it is imposing a cost on the rest of society,which makes us worse off.Taxes are therefore needed to eradicate pollution."
C)"An externality occurs when firm A,while producing something for firm C,imposes costs on firm B.By imposing a tax on firm C,we can achieve the efficient level of production."
D)"An externality occurs when two parties conflict over the use of a common resource.An efficient outcome will result if property rights are defined and the two parties can bargain."

Question

Quizplus · Accepted Answer

Ronald Coase's theory of externalities argues that if property rights are well-defined, parties can bargain to achieve an efficient outcome. In the case of conflict over the use of a common resource, assigning property rights and allowing the affected parties to negotiate could help reach an efficient outcome. Choice A is incorrect because it assumes that a tax can completely eradicate the negative effects of pollution. Choice B is incorrect because it assumes that all pollution is harmful and must be taxed. Choice C is incorrect because it assumes that imposing a tax on one firm will solve the problem when the externality involves multiple parties.

Which of the Following Statements Is Most Consistent with Ronald