According to the Coase theorem the private market will reach the efficient

According to the coase theorem the private market

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According to the Coase theorem, the private market will reach the efficient outcome  on its own. How? Jane can simply offer to pay Dick to get rid of the dog. Dick will  accept the deal if the amount of money Jane offers is greater than the benefit of  keeping the dog. By bargaining over the price, Dick and Jane can always reach the efficient outcome.  For instance, suppose that Dick gets a $500 benefit from the dog and Jane bears an  $800 cost from the barking. In this case, Jane can offer Dick $600 to get rid of the  dog, and Dick will gladly accept. Both parties are better off than they were before, and  the efficient outcome is reached. It is possible, of course, that Jane would not be willing to offer any price that Dick  would accept. For instance, suppose that Dick gets a $1,000 benefit from the dog and  Jane bears an $800 cost from the barking. In this case, Dick would turn down any  offer below $1,000, while Jane would not offer any amount above $800. Therefore,  Dick ends up keeping the dog. Given these costs and benefits, however, this outcome is  efficient. So far, we have assumed that Dick has the legal right to keep a barking dog. In other  words, we have assumed that Dick can keep Spot unless Jane pays him enough to  induce him to give up the dog voluntarily. But how different would the outcome be if  Jane had the legal right to peace and quiet? According to the Coase theorem, the initial distribution of rights does not matter for  the market's ability to reach the efficient outcome. For instance, suppose that Jane can  legally compel Dick to get rid of the dog. Having this right works to Jane's advantage,  but it probably will not change the outcome. In this case, Dick can offer to pay Jane to  allow him to keep the dog. If the benefit of the dog to Dick exceeds the cost of the  barking to Jane, then Dick and Jane will strike a bargain in which Dick keeps the dog. Although Dick and Jane can reach the efficient outcome regardless of how rights are  initially distributed, the distribution of rights is not irrelevant: It determines the  distribution of economic well-being. Whether Dick has the right to a barking dog or  Jane the right to peace and quiet determines who pays whom in the final bargain. But  in either case, the two parties can bargain with each other and solve the externality  problem. Dick will end up keeping the dog only if the benefit exceeds the cost.
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