Question

Which of the following would be an example of the Coase​ Theorem? A. The county commission agrees to a town meeting to hear concerns from citizens about setting off fireworks after 10 p.m. B. The county commission approves a steep fine to be placed on anyone setting off fireworks after 10 p.m. C. The homeowners association provides a fireworks show that ends at 10 p.m. D. The homeowners association agrees to report anyone setting off fireworks after 10 p.m. to the local authorities.

Answer 1

The correct answer is C.

Explanation:

Coase Theorem says that any externality can be dismantled no matter who is ultimately compensated. The theorem mainly concerns compensation for pollution of foreign property, and states that, provided certain conditions are met, negotiation can lead to Pareto's optimal outcome.

Ronald Coase came up with the idea when looking for a way to allocate broadcast frequencies as efficiently as possible to individual radio stations. Competing radio stations could not agree on which radio frequency to choose, and if more than one of them was broadcasting on the same frequency, there was mutual interference. Coase noted that, despite the lack of state regulation to ensure a fair allocation of radio frequencies, the market is able to deal with this problem as follows: Radio stations that have sought to increase their economic profits by broadcast on an exclusive frequency, they were willing to pay their competitors to switch to another radio frequency without interrupting their transmission.