This is a discussion our class has.. I need a reply to her answer: 6 + Sentences

Question

This is a discussion our class has.. I need a reply to her answer: 6 + Sentences / 75 wordsThe Coase theorem is the statement that if individuals can bargain without cost over the allocation of resources, they can solve the problem themselves. First of all, you will bargain with your roommate as to whether or not the roommate can continue to smoke in the room. If you value clean air more than your roommate values smoking than the bargaining will lead to your roommate not smoking. If your roommate values smoking more than you value clean air than your roommate will bargain to continue smoking in the room. As long as transaction costs do not stop an agreement from happening, the outcome is effective. You would pay each other off, whether is it to smoke or not smoke in the room.

Explanation / Answer

Reply can be of the following manner-

Being a non-smoker and knowing well the consequences of passive smoking, I will be ready to pay the transaction cost that is acceptable like sharing my stationary in the process of making this bargain. This solution will result in preventing my room-mate smoke and also will keep the air clean which is beneficial for both of us. This will result in resolving the problem of externality i.e. smoking without any external help.

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