According to the Coase theorem, externality problems may be solved if the parties involved can negotiate. Which of the following is also required for an efficient solution?
A)Clearly defined bargaining costs and low transaction costs
B)Enforceable bargaining costs and high transaction costs
C)Enforceable property rights and low bargaining costs
D)Enforceable property right and high bargaining costs
E)Government intervention

Question

According to the Coase theorem, externality problems may be solved if the parties involved can negotiate. Which of the following is also required for an efficient solution?​
A)Clearly defined bargaining costs and low transaction costs
B)Enforceable bargaining costs and high transaction costs​
C)Enforceable property rights and low bargaining costs​
D)Enforceable property right and high bargaining costs​
E)Government intervention​

Quizplus · Accepted Answer

For an efficient solution to be reached through negotiation, two conditions must be met: enforceable property rights and low bargaining costs. The parties involved must have a clear understanding of their respective property rights, and the cost of negotiating and reaching an agreement must be low enough to make it worthwhile for them. Enforceable bargaining costs (option B) are not a recognized term, and high transaction costs (option B and D) would make negotiation less feasible. Government intervention (option E) is not necessary if property rights are well-defined and transaction costs are low.

According to the Coase Theorem, Externality Problems May Be Solved