Coase's Theorem

Coase's Theorem suggests that if property rights are clearly defined and there are no transaction costs, then parties can negotiate privately to resolve conflicts over resources efficiently, regardless of who initially owns those rights. For example, if a factory's pollution affects nearby residents, the factory and residents can negotiate to reach an agreement—like pollution reduction or compensation—that benefits both. The key idea is that, with proper rights and free negotiation, the most efficient outcome will be achieved without the need for government intervention.