Question

The Coase theorem states that:________.

a. positive externalities are directly related to the weather-the better the weather, the more positive externalities.
b. in the case of trivial or zero transaction costs, negative externalities are more likely to appear.
c. when transaction costs are high, positive externalities will be minimized.
d. in the case of trivial or zero transaction costs, the property rights assignment does not matter to the resource-allocative outcome.

Answer 1

d. in the case of trivial or zero transaction costs, the property rights assignment does not matter to the resource-allocative outcome.

Step-by-step explanation:

The Coase Theorem states a solution to Externalities problem. The theorem states that if externality effects are trade-able at low transaction costs, bargaining will establish optimal output, irrespective of which party has property rights.

Eg : Wind Turbines generate noise negative externality. However, noise spectrum has no property rights definition. The spectrum considered anybody's property right (turbine owners or public). It would lead to establishment of optimal output

• Continued turbine operation : if benefit value > noise harm by it
• Inefficient turbine operation (discouraged) : if benefit value < noise harm by it

The optimality decision would stay same, based on above norms. It would be irrespective of noise spectrum property rights ownership (by turbine owners or public), if transaction costs are low.