Coase Theorem Discussion Questions

Is Coase’s theorem valid? Why or why not? How does Coase’s theorem address the problem of environmental pollution control? Does this make sense? Why or why not?

Coase’s theorem states that in a perfectly competitive market and low transaction costs, an efficient outcome in terms of distribution of inputs and outputs will be achieved despite how property is divided (Agarwal et al, 2013). This theorem is valid because it ensures that externalities are internalized in order to reduce inefficiencies caused by externalities (Yalcintas, 2013). Coase’s theorem addresses the problem of environmental pollution by ensuring that the a trade in the environmental pollution can be used in a situation of low transaction costs to ensure that there is an efficient outcome despite there being a property right on the cause of the environmental pollution (Crifo & Forget, 2015).

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