Model
Coase Theorem
quote
Another way to internalize externalities is through a marketplace. Ronald Coase won the Nobel Prize in economics in 1991 in part for what has become known as the Coase theorem, essentially a description of how a natural marketplace can internalize a negative externality. Coase showed that an externality can be internalized efficiently without further need for intervention (that is, without a government or other authority regulating the externality) if the following conditions are met: 1. Well-defined property rights 2. Rational actors 3. Low transaction costs
From
Chapter:
Anything That Can Go Wrong, Will
Section:
Harm Thy Neighbor Unintentionally
