Question

Acid rain was the topical pollution concern during the 1990s. It was caused by pollutants released into the air (Cars, industry, etc). The Coase theorem is applicable in this case as bargaining can lead to the socially optimal outcome, namely no acid rain.

is the statement in italics true? false? or can't be determined? explain why

Answer 1

The acid rain is an example of the negative externalities. Coase theorem says that negative externalities can be addressed if property rights are clearly defined. There must be a costless bargaining.

Although coase theorem helps to correct externalities, here it would not be able to address the externalities. The size of group is larger here and free rider problem would be well documented here. Coase theorem is successful only if free rider problem is absent here.