The Coase Theorem and Socially Optimal Outcome

Can the socially optimal outcome be reached according to the Coase Theorem?

a. No, the neighborhood association will not agree to barking dogs.

b. No, the dog-walkers do not have enough to compensate the neighborhood association.

c. Yes, the dog-walkers can pay the association at least $201 and cover the transactions costs.

d. No, the transactions costs are too high.

e. Yes, the dog-walkers can pay the association at least $301 and cover the transactions costs.

Final answer:

According to the Coase Theorem, the socially optimal outcome can be reached if the dog-walkers can pay at least $301 to the association and cover the transaction costs.

Explanation:

According to the Coase Theorem, the socially optimal outcome can be reached if the dog-walkers can pay the association at least $301 and cover the transactions costs. In this scenario, the dog-walkers value walking their dogs at $400 per month, while the neighborhood association values peace-and-quiet at $320 per month. Since the dog-walkers value their activity more than the association values peace-and-quiet, they have an incentive to compensate the association to continue walking their dogs.