Question

The Coase theorem states that:________.

Answer 1

Answer:

d. in the case of trivial or zero transaction costs, the property rights assignment does not matter to the resource-allocative outcome.

Explanation:

The Coase Theorem states a solution to Externalities problem. The theorem states that if externality effects are trade-able at low transaction costs, bargaining will establish optimal output, irrespective of which party has property rights.

Eg : Wind Turbines generate noise negative externality. However, noise spectrum has no property rights definition. The spectrum considered anybody's property right (turbine owners or public). It would lead to establishment of optimal output

• Continued turbine operation : if benefit value > noise harm by it
• Inefficient turbine operation (discouraged) : if benefit value < noise harm by it

The optimality decision would stay same, based on above norms. It would be irrespective of noise spectrum property rights ownership (by turbine owners or public), if transaction costs are low.