Indicate whether the statement is true or false, and justify your answer.A Coasian approach may not succeed in achieving a socially optimal level of organ transactions.
Indicate whether the statement is true or false, and justify your answer.
A Coasian approach may not succeed in achieving a socially optimal level of organ transactions.
An externality is an additional cost or benefit incurred to a third person who is not directly involved in economic activity. The two individuals who are involved in the economic transaction have a direct impact whereas the externality is the impact felt by the third person who is not directly involved in the activity. When the externality is in the form of the additional cost is known as the negative externality and the externality in the form of the additional benefit is known as the positive externality.
There are many solutions to externality. The best solution considered by economists is the Coase theorem which is the assigning of property rights and eliminating the externality. The Coase theorem is the proposition that if the private parties can bargain without cost over the allocation of the resources, they can also solve the problem of externalities on their own. This means that there will be property rights assigned to the polluter or the individual. The property right leads to the bargaining between the property right owner and the other and they would reach a good solution in the case of externality on their own. There will be a good solution for the externality irrespective of the allocation of the property right between them.
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