Question

 The Coasean Theorem solves externality problems, except when _______ 

 A. There are too many parties to efficiently coordinate a solution to the problem.

 B. Two answers are correct.

 C. There are high transaction costs involved.

 D. Three answers are correct.

 E. One or many parties hold out for a better deal.

Answer 1

Option B

Explanation: According to Coase Theorem, if trade in an externality is possible bargaining parties can lead to an efficient outcome regardless of the initial allocation of property rights as long as transaction costs are low. Two important assumptions in the theorem is that transaction costs are low and the number of parties involved is less.