Final answer:
The Coase Theorem is best applied to the scenario with Paul's maple tree hanging over Nancy's fence due to the clear property rights and fewer parties involved.Option B is the correct answer.
Step-by-step explanation:
The Coase Theorem is most likely to work to solve the externality in the case where Paul’s maple tree hangs over Nancy’s fence and drops leaves into her yard each autumn. This situation involves a clear definition of property rights and a small number of involved parties, making it easier to negotiate a solution. In contrast, the other scenarios provided (A, C, D, E) involve many parties or lack well-defined property rights, making negotiation more challenging and thus less likely for the Coase Theorem to be applicable.
The Coase Theorem is most likely to work in cases where property rights are well-defined, transaction costs are low, and parties can negotiate efficiently. Option B, where Paul's maple tree affects Nancy's yard, represents a scenario where the Coase Theorem could be effective. In this case, Paul and Nancy can potentially negotiate a solution, such as tree trimming or compensation, to address the externality.
In contrast, the other options involve complex issues with diffuse and widespread impacts, making negotiations and property rights assignment challenging. For instance, options A, C, and E involve environmental externalities with multiple parties and extensive geographic scope, making negotiations and property rights definition difficult. Option D involves a common pool resource (the roadway), posing challenges for individual negotiation. Therefore, Option B is the most conducive to the Coase Theorem due to its localized and directly impacting nature, facilitating negotiations between the parties involved.