The Coase theorem states that

a. in the absence of transaction costs, private parties can solve the problem of externalities on their own.

b. subsidies are an efficient way for governments to remedy positive externalities.

c. industrial policies encourage technology spillovers.

d. taxes are an efficient way for governments to remedy negative externalities.

Question

Business

Maria

19 December, 08:40

The Coase theorem states that

a. in the absence of transaction costs, private parties can solve the problem of externalities on their own.

b. subsidies are an efficient way for governments to remedy positive externalities.

c. industrial policies encourage technology spillovers.

d. taxes are an efficient way for governments to remedy negative externalities.

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Answers (1)

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Rey Boyer · Answer 1

a. in the absence of transaction costs, private parties can solve the problem of externalities on their own.

Explanation:

The Coase Theorem is a theorom used in economics that states that when there are complete competetive markets with no transaction costs, an efficient set of inputs and outputs to and from production-optimal distribution will be selected. It is a method of tackling the inefficiency caused by the externality by awarding property rights to the externality to one party and allowing the other parties to bargain their way to an efficient solution.