The '___ Theorem' in welfare economics states that if property rights are well-defined and transaction costs are zero, private parties can bargain to efficiently resolve externalities without the need for government taxation or regulation.
- sustained decrease
- Coase
- final
- Leverage
Answer: Coase
Ronald Coase challenged the traditional Pigouvian view that externalities always require government intervention. He argued that if a factory pollutes a river, the factory owner and the downstream fishermen can simply negotiate a mutually beneficial financial settlement, provided the legal rights to the river are clear and the cost of negotiating is negligible. The initial allocation of rights only affects wealth distribution, not the ultimate efficient outcome.