Question

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome. a. TRUE b. FALSE

Answer 1

TRUE

Step-by-step explanation:

The Coase theorem states that when transaction cost are low, two parties will be able to bargain and reach an efficient outcome in the presence of an externality.

The Coase Theorem also states that when conflicting property rights occur, bargaining between the parties involved will lead to an efficient outcome regardless of which party is ultimately awarded the property rights, as long as the transaction costs associated with bargaining are negligible. If trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.