Which of the following uses the Coase Theorem to solve an externality problem? Select one: a....

Which of the following uses the Coase Theorem to solve an externality problem?

Select one:

a. A group of fishermen offer to pay a factory owner to reduce water pollution, even lower than the mandated level.

b. The government taxes apple orchards to subsidize beekeepers.

c. The government imposes fines for drunken driving.

d. An apple orchard purchases the beehives on a neighboring farm.

Solutions

Expert Solution

a. A group of fishermen offer to pay a factory owner to reduce water pollution, even lower than the mandated level.

Coase theorem says that when transaction cost is low or zero, parties can negotiate to internalize the externality and reach efficient equilibrium.

Fisherman tries to negotiate with the factory owner to internalize external cost

Rahul Sunny answered 1 year ago

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