Question

A coase solution to a problem of externality insures ensures that a socially efficient outcome is to:

a. internalize the externality through taxes
b. internalize the externality through subsidies
c. maximize the joint welfare, irrespective of the right of ownership.
d. stop production if there is any externality.
e. invite other private partners to share the burden of externality.

Answer 1

Answer:

The correct answer is letter "C": maximize the joint welfare, irrespective of the right of ownership.

Explanation:

Named after British economist Ronald Coase (1910-2013) the Coase Theorem is a legal and economic theory which states that, when there are competitive markets and no transaction costs, bargaining will result in an effective and mutually beneficial outcome irrespective of how property rights are distributed.