Question

Jason is a beekeeper. He keeps bees to produce honey and bees wax candles. Peter is a farmer whose farm is next to where Jason keeps his bees. Bees assist in pollinating crops. Which of the following statements are true: A private negotiation should not be hindered by negotiation costs if Jason and Peter can come to an agreement by just talking to one another. A private negotiation is hindered by the fact that it is unclear who has the property rights. A successful private negotiation should be possible where Peter values Jason keeping more bees, and the value to Peter is greater than the cost to Jason of acquiring more bees. A private negotiation should internalise the external benefits from Jason's bees.

Answer 1

According to Coase theorem if there is no or low transaction cost and has an externality then bargaining among private parties will lead to an efficient outcome where both parties benefit regardless of the initial cost involved. here Jason and Peter can bargain and come to an efficient solution though externality is involved and property right is unclear. So the first option is correct.