According to the Coase theorem, private parties can solve the problem of externalities if a. the number of parties involved is sufficiently large. b. the cost of bargaining is small. c. property rights aren't clearly defined. d. the initial distribution of legal rights favors the person being adversely affected by the externality.
Added by Martin W.
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The Coase Theorem posits that if property rights are well-defined and transaction costs are negligible, private parties can negotiate to resolve externalities on their own, leading to an efficient allocation of resources. Show more…
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