Suppose your roommate smokes in your apartment,imposing a cost on you.The Coase theorem suggests that one solution would involve:

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The Coase theorem suggests that if property rights are clearly defined and transaction costs are low, parties can negotiate a mutually beneficial solution to problems like externalities (e.g., secondhand smoke). In this case, if your roommate is given the right to the air in your apartment, you could negotiate with them (perhaps by offering to pay them to stop smoking inside), leading to an efficient outcome that considers both of your preferences.

Suppose Your Roommate Smokes in Your Apartment,imposing a Cost on You.The