Suppose Coase\'s Theorem holds in a particular context. The allocation of proper

Question

Suppose Coase's Theorem holds in a particular context. The allocation of property rights with respect to the resulting privately negotiated outcome is analogous to: O The allocation of permits under a cap and trade system in which the cap is set by the government such that the equilibrium permit price equals the marginal external cost of emissions. The distribution of welfare impacts across the competitive equilibrium when marginal external costs are non-zero O The realized marginal abatement costs of firms under a uniform emissions standard with heterogeneous abatement costs. A uniform command and control policy.

Explanation / Answer

a is the correct option

Reason

The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining. Option A can be described by this.

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