Question

What are some circumstances under which the coase theorem fails to apply?

Answer 1

Circumstance under which the Coase theorem fails;

This theorem is not suited for practical applications because the initial allocation of property rights may affect the final result of the negotiations.

Explanation:

• The Coase theorem was developed by an economist named Ronaldo Coase.
• This theorem was introduced to resolve the issues involved during the price distribution in property rights.
• Also, it states that the price of a property can be bargained between the two individuals to get a positive result.
• But this theorem is not applicable for all situations, as the people who have the right to own his property expect to sell it at a higher rate than the market value.
• This will leads to internal conflicts between the seller and the buyer and it affects the final price of that property.