What is the Coase Theorem? Under what conditions will the Coase Theorem break down?
What will be an ideal response?
The Coase Theorem predicts that, when there are externalities, negotiation between the individuals involved leads to the efficient outcome regardless of who has the legal property right. This means that government intervention is not necessary to solve externality problems.
The Coase Theorem will not hold if transaction costs of negotiating are too high. This cost could include direct expenditures like legal fees and time and also the cost of an awkward situation: it may be difficult to bargain with neighbors and others. The number of agents on each side of the bargaining table also matters; bargaining may not work when there are many people involved. Additionally, it's important for the property right to be clearly defined; in many cases, the law is not clear on who holds the property rights.
You might also like to view...
A Nash equilibrium occurs
A) when each player acts without considering the actions of the other player. B) when each player takes the best possible action given the action of the other player. C) only when players use the tit-for-tat strategy. D) only when the game is played in Nashville, Tennessee. E) when each player takes the action that makes the combined payoff for all players as large as possible.
The real interest rate is the annual percentage amount of money that is earned on a sum loaned or deposited in a bank
a. True b. False Indicate whether the statement is true or false