Answer:
c) as long as property rights are well defined and no transactions costs exist, an efficient allocation will result.
Explanation:
Coase theorem was developed in 1960 by a British economist and author named Ronald Coase.
Coase theorem states that when the actions of a party (X) negatively affects or harm another party (Y), then party Y should be able to create an incentive for party X to stop or limit the action creating such harm.
Generally, when transaction cost are low, the two parties are able to bargain and reach a mutual agreement in the presence of an externality such as a pollution.
An externality is typically an unwarranted cost or benefit by a manufacturer or producer of goods and services that affects a third party.
In Economics, an externality could either be positive or negative depending on its effect on a third party.
A negative externality arises when the production or consumption of a finished product or service has negative impact (cost) on a third party.
In conclusion, the Coase theorem is applicable only if there are well defined property rights, the number of people involved is small, and the cost of negotiation is low.
