Which of the following is true regarding private ownership in the context of the Coase Theorem?

• A. Private ownership allows parties to negotiate and potentially resolve externalities without government intervention.
• B. Private ownership prevents any form of negotiation between affected parties.
• C. Private ownership always eliminates externalities regardless of transaction costs.
• D. Private ownership requires government regulation to address all externalities.

Answer: (A)

Verified step by step guidance

1. Understand the Coase Theorem, which states that if property rights are well-defined and transaction costs are negligible, parties can negotiate to resolve externalities efficiently without government intervention.
2. Recognize that private ownership means that property rights are assigned to individuals or firms, enabling them to negotiate over the use or harm of resources.
3. Analyze the role of transaction costs: if these costs are low or zero, private parties can bargain to correct externalities on their own, leading to an efficient outcome.
4. Note that private ownership does not inherently prevent negotiation; rather, it facilitates negotiation by clearly defining who holds the rights.
5. Conclude that private ownership allows parties to negotiate and potentially resolve externalities without government intervention, provided transaction costs are not prohibitive.