According to the Coase Theorem, if transactions costs are low then a private mar

Question

According to the Coase Theorem, if transactions costs are low then a private market(that is, an unregulated market) is efficientA)only if property rights are assigned to the person who is being harmed by the externalcost.B)only if property rights are assigned to the person who is creating the external cost.C)if property rights are assigned either to the person who is creating the external cost or tothe person who is being harmed by the external cost.D)if property rights are eliminated wherever an external cost or benefit appears.

Explanation / Answer

According to Coase theorem, if property rights with respect to a resource conflicts then in such case bargaining between parties involved can lead to efficient outcome irrespective of the fact that which party is ultimately awarded the property rights as long as the transaction cost involved in bargaining is low or negligible.

As stated above assignment of property rights is not important with respect to achievement of efficient outcome as per coase theorem only transaction cost of bargaining has to be low or zero.

Hence, the correct answer is option (C).

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