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Homework answers / question archive / The Coase theorem suggests that private parties: a
The Coase theorem suggests that private parties:
a. can negotiate to correct a negative externality if barriers to negotiation are low.
b. will never be able to negotiate to correct a negative externality.
c. can never negotiate to correct a negative externality if there are more than two parties involved.
d. can negotiate to correct a negative externality if the government passes a law allowing them to do so.
e. can always negotiate to correct a negative externality.
The Coase theorem suggests that private parties a. can negotiate to correct a negative externality if barriers to negotiation are low.
The best-known example of a negative externality is probably pollution. A negative externality might be able to be corrected by the interested parties if the costs to do so and the negotiation costs are low, according to the Coase theorem. If either the cost of fixing the problem or the cost of negotiation is high, then it is more likely that government intervention will be needed. A big manufacturing company cannot probably use the Coast theorem. However, it might work for noise pollution in a residential neighborhood.
