Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that
A) bargaining between the firm and the victims of the air pollution caused by the firm will result in little reduction of pollution in either situation (A) or (B) because the firm has greater economic and political power than the victims.
B) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a greater reduction in pollution in situation (A) than situation (B).
C) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a smaller reduction in pollution in situation (A) than situation (B).
D) bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (A) and situation (B).

Question

Quizplus · Accepted Answer

Ronald Coase argued that if property rights are well-defined and transaction costs are low, bargaining will lead to an efficient outcome regardless of the initial allocation of rights, implying equal reduction in pollution in both situations.

Compare Two Situations