![]() ![]() Although this is based on the assumption that there are no transaction costs. The Coase theorem states that in such situations, it is more efficient for property rights to be clearly defined and for both parties to bargain instead. We may then see lawsuits that can drag on for years and cost thousands of dollars. What results is a negative cost on to the individual walking past the river. Neither the business nor the individual owns the right to the river. There may be bottles and other items in the river which make it unpleasant. In turn, those that benefit from walking past the river and enjoying the views face a negative externality. One such example of the coase theorem is where a business may pollute a river. There are a number of assumptions to Coase theorem, many of which are not applicable in the real world.Coase theorem is only applicable when transaction controls are zero.Coase theorem is the idea that under certain conditions, the issuing of property rights can solve negative externalities.
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