Logically Explain these parts: (a) What do you know about COASE theorem? Under what conditions COASE theorem would not work effectively or break down? (b) Explain its working with the help of real-life example? (Other than the example discussed in class lecture)
Logically Explain these parts:
(a) What do you know about COASE theorem? Under what conditions COASE theorem would not work effectively or break down?
(b) Explain its working with the help of real-life example? (Other than the example discussed in class lecture)
a. Coase Theorem states that under the condition where the transaction costs are absent, rights to property are well-defined and tradable, then voluntary negotiations will lead to the efficient allocation of resources. In other words, the theorem suggests that if transaction cost is low and property right are clearly defined, private bargain will ensure that the market equilibrium is efficient even there are externalities.
If the property rights are not properly defined, there exist transaction costs then the Coase theorem may fail to achieve efficient allocation.
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