What are some circumstances under which the Coase theorem fails to apply? Choose all correct options. (A) The two parties are unable to communicate. (B) The externality is small. (C) Property law is clear about everyone's position. (D) No applicable property law exists. (E) Many individuals are impact

Answer: (A) The two parties are unable to communicate.

(B) The externality is small.

(D) No applicable property law exists.

(E) Many individuals are impact

Explanation:

The coarse theorem suggests that when two parties are able to bargain with each other to reach a common conclusion and reach to an agreement that efficiently addresses the extrernalities. According to the theorem conditions like low transaction cost and well explained property rights are required. If the conditions are favorable, the bargaining parties will reach upto an agreement. But in reality the transaction cost exists and the individuals of the two parties are not able to resolve the problems.

The circumstances like lack of communication between the two parties will affect the agreement and common interest between the two parties, the externalities found to be small, no proper property laws exists this will affect the terms of agreement, no claim can be made and if many parties are involved then the agreement will become difficult.