# Coase theorem

Bob and Dexter share a dorm room. Bob is a smoker but Dexter does not smoke. There are no laws that prohibit smoking in the dorm rooms. The benefit of smoking is worth $250 to Bob, but the smoke imposes a $500 cost on Dexter. How might the Coase theorem be used to achieve an efficient outcome in this situation? Be sure to define the Coase theorem, and the conditions under which the Coase theorem may work.

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Coase theorem states that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of ...

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Coase theorem

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