Consider a situation in which a utility company emits high levels of sulphur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.
A)necessary; equitable
B)necessary; efficient
C)not necessary; equitable
D)not necessary; efficient

Question

Quizplus · Accepted Answer

The Coase theorem states that as long as property rights are well defined, and transaction costs are low, private parties will bargain to achieve an efficient allocation of resources regardless of how property rights are assigned initially. In this case, the utility company is not liable for the damages caused by its pollution, meaning that property rights to clean air are undefined. Therefore, the government action is not necessary to achieve an efficient amount of pollution reduction. However, the Coase theorem does not address the issue of equity, so it is not clear whether the outcome would be equitable.

Consider a Situation in Which a Utility Company Emits High