Question

In Ronald Coase's Nobel winning Coase theorem, if two bargaining parties have zero transaction costs, well-defined property rights over the good and there are no income effects:

• A. They will never reach an efficient bargaining solution for the good.
• B. They will always reach an efficient bargaining solution for the good.
• C. They will reach a bargaining solution with government intervention.
• D. They will never be able to reach an efficient bargaining solution even with governmental intervention.

Hint:

Think about the core of the Coase theorem.

Answer 1

The Correct Option is B

According to the Coase theorem, if there are zero transaction costs, well-defined property rights, and no income effects, bargaining parties can always reach an efficient outcome through negotiations.

Hence, the correct answer is (b).