question archive The Coase theorem, developed by economist Ronald Coase, says that through negotiation, the most cost-effective, or efficient, outcome will occur as long as what is clearly defined? A
The Coase theorem, developed by economist Ronald Coase, says that through negotiation, the most cost-effective, or efficient, outcome will occur as long as what is clearly defined? A
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The Coase theorem, developed by economist Ronald Coase, says that through negotiation, the most cost-effective, or efficient, outcome will occur as long as what is clearly defined?
A. the exact cost of the externality
B. the individuals being harmed
C. property rights
D. the time before the contract must be signed
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The correct answer is C. property rights.
The Coase theorem, is economics and law, is a theory which states that an efficient outcome can be reached without the need of government intervention when there are issues associated with externalities as long as the following criteria are met:
- Low or non-existence of transaction costs
- Perfect information
- People act rationally
- Property rights well defined
Assuming that the previous criteria are met, the individuals in conflict will bargain and the allocation of resources will be efficiently leading to the elimination of externalities. Therefore, the correct option is C. because it is the only answer that presents one of the assumptions of the Coase theorem.
