The Coase Theorem is a concept in economics that explains how property rights affect the allocation of resources.
The theorem assumes that there are no transaction costs, and that property rights are well-defined and transferable.
According to the theorem, if property rights are well-defined and transferable, then the allocation of resources will be efficient regardless of who initially holds the property rights.
The theorem has important implications for environmental policy, as it suggests that assigning property rights to natural resources can lead to efficient outcomes.
However, the theorem has limitations, as it does not account for situations where transaction costs are high or property rights are not well-defined.
The theorem also assumes that parties have perfect information and act rationally, which may not always be the case in real-world situations.
Overall, the Coase Theorem is a useful tool for understanding how property rights affect resource allocation, but it should be applied with caution and in conjunction with other economic concepts.