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7.5: Coasian Bargaining
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- Can I just bribe my neighbor to stop being annoying?
- When there aren’t many individuals involved, the individuals may be able to solve the problem of externalities without involving a government, but through negotiation.
- Nobel laureate Ronald Coase argued that bargaining can generally solve problems of externalities and that the real problem is ill-defined property rights.
- Bargaining to solve the problem of externalities is often feasible when a small number of people are involved. When a large number of people are potentially involved, as with air pollution, bargaining is unlikely to be successful in addressing the problem of externalities.