Explain why in situations where the Coase Theorem applies, bargaining power does not influence whether the efficient outcome is reached, but affects the distribution of gains

What will be an ideal response?

The Coase Theorem applies when parties can negotiate at zero cost. If they can negotiate at zero cost then they should always choose the efficient outcome since the efficient outcome maximizes the sum of their benefits from an agreement. Bargaining power determines how the sum of the benefits is divided between the two parties. In the divorce example in this chapter, Adam and Barb should decide not to divorce since not divorcing maximizes the sum of their benefits. The Coase Theorem predicts they will not divorce regardless of how the divorce law in their state is written. The divorce law will, however, be a factor in how the gains from remaining married are divided between them.