Question

The Coase theorem states that if there are no barriers to negotiation, interested parties will bargain to settle any externalities that exist. As the number of parties involved increases, the bargaining costs increases and reaching a private solution becomes impossible." What does the increasing number of parties involved in the Coase theorem scenario suggest?

a) Bargaining becomes easier
b) Bargaining costs decrease
c) Difficulty in reaching a private solution
d) A more effective negotiation process

Answer 1

The increasing number of parties involved in the Coase theorem scenario suggests a difficulty in reaching a private solution as bargaining costs increase.

Step-by-step explanation:

The increasing number of parties involved in the Coase theorem scenario suggests that there is a difficulty in reaching a private solution (c) as bargaining costs increase. When there are more parties involved, the complexity of the negotiation process increases. The costs associated with coordinating and reaching an agreement among multiple parties can become prohibitive, making it more challenging to find a mutually acceptable solution.