Which of the Following Correctly States the Coase Theorem

question 10

Multiple Choice

Which of the following correctly states the Coase theorem?

• A) The outcome of a negotiation to resolve an externality will depend on the initial assignment of property rights.
• B) Parties that are affected by an externality will bargain to reach an efficient outcome, even in the presence of positive transaction costs.
• C) When two parties are affected by an externality, the party that caused the externality will pay the affected party the entire cost of the externality.
• D) In the absence of property rights assigned to the affected parties, the efficient outcome will need to be negotiated by the government.
• E) Bargaining between the affected parties will result in an efficient outcome, regardless of the property-rights assignment.

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Definitions:

Unreasonable Risk

A situation or action that exposes individuals to a significant potential for harm that is not justified by the possible benefits.

Human Health

The state of complete physical, mental, and social well-being, not merely the absence of disease or infirmity.

Toxic Substances Control Act

A legislation passed in the United States in 1976 designed to control the introduction and use of both new and existing chemicals.

Federal Insecticide, Fungicide, and Rodenticide Act

A United States federal law that sets up the basic U.S. system of pesticide regulation to protect applicators, consumers, and the environment.