Question

a. Please define the Coase Theorem.

b. Was there an externality between consumers (customers) in this news article? http://www.cbc.ca/newsblogs/yourcommunity/2013/08/houston-restaurant-bans-kids-during-dinner-hours.html

c. Was the restaurant owners action an example of an application of the Coase Theorem? Explain using your definition in part a.

Answer 1

Coase theorem is an economic theory that affirms that where there are complete competitive markets(with no transactions costs), an efficient set of inputs and outputs to and from production-optimal distribution are selected, regardless of how property rights are divided. Further, the Coase theorem asserts that when property rights are involved, parties naturally gravitate toward the most efficient and mutually beneficial outcome.
B.Yes,there is an externality.Due to children,the restaurant experience of adults(third party)were being affected.

C.Yes,coase theorem is involved because people have achieved an efficient outcome by defining separate time for children.