Coase’s law

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Definition: Coase’s law

The coase theorem was postulated by the noble laureate, Ronald Coase. It states that when transaction costs are absent and the property rights are well defined, an effective and efficient solution can be reached between the parties through bargaining.

Since the absence of transaction cost is not a correct assumption, it has been replaced by “PERFECT INFORMATION ASSUMPTION”. In this case there’s no need of government intervention to tackle the externalities. This is because the parties holding property rights will bargain to achieve an optimal allocation of resources.


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