Question

According to the Coase theorem, in the presence of externalities

a private parties can bargain to reach an efficient outcome.
b government assistance is necessary to reach an efficient outcome.
c the initial distribution of property rights will determine the efficient outcome.
d the assignment of legal rights can prevent externalities.

Answer 1

According to the Coase theorem, in the presence of externalities:

a. private parties can bargain to reach an efficient outcome.

Step-by-step explanation:

• In Economics, the Coase Theorem states that if trade in an externality is possible and there are no transaction costs. The bargaining will result into an efficient outcome irrespective of the initial allocation of property rights. This theorem was introduced by the Ronald Coase.

• The option a is correct as the private parties can bargain to reach an efficient outcome but it is not necessary to get the government assistance to reach an efficient outcome so that's why the option b is not correct.
• The option c is also incorrect as the initial distribution will not determine the efficient outcome and also the option d is also incorrect as the assignment of legal rights can not prevent externalities.