Assume your roommate is very untidy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she/he gets a $200 benefit from being untidy but imposes a $100 cost on you. The Coase Theorem would suggest an efficient solution can be reached where:

Question

Quizplus · Accepted Answer

The Coase Theorem suggests that if transaction costs are low, the parties involved can negotiate and reach an efficient solution, regardless of how property rights are initially assigned. In this scenario, transaction costs are low because the parties live together and can negotiate directly.

Option A is not an efficient solution as it does not address the cost of living in an uncluttered apartment.

Option B is not an efficient solution unless the roommate voluntarily chooses to stop being messy or move out. Forcing the roommate to move out may create additional transaction costs, such as finding a new roommate or paying for a new apartment.

Option C is not an efficient solution because it would require you to bear the cost of your roommate's untidiness, which contradicts campus policy.

Option D is an efficient solution because it allows the roommate to internalize the cost of her untidiness by compensating you for the cost it imposes on you to live in an uncluttered apartment. Similarly, you are compensated for allowing your roommate to be untidy. It is important to note that the compensation shouldn't exceed $200 (the benefit received by the roommate for being untidy) or fall below $100 (the cost imposed on you for your roommate's untidiness).

Assume Your Roommate Is Very Untidy