Discuss the Coase Theorem. How does it work? Explain with examples. Are there any limitations of Coasian bargaining? Support your answer with examples.

The Coase Theorem is an economic principle developed by Ronald Coase in 1960 that addresses the allocation of resources and the resolution of externalities through bargaining between affected parties. It suggests that under certain conditions, parties can negotiate and reach an efficient outcome regardless of how property rights are initially assigned. The Coase Theorem has important implications for understanding the role of transaction costs and the potential for private solutions to externalities.

The Coase Theorem works based on the following assumptions:

1. Property rights: The Coase Theorem assumes that property rights are well-defined and enforceable. This means that individuals have the right to use, control, and exclude others from using their property.

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