Which of the following is not an assumption of the Coase theorem related to externalities and environmental problems?

Correct option is B

The correct answer is: (B) Presence of income effect

Explanation:
The Coase Theorem suggests that under conditions where transaction costs are low, private negotiations between parties can lead to an efficient allocation of resources, even in the presence of externalities. However, the assumption of income effect is not part of the Coase theorem.

Information Booster:

• The Coase Theorem was proposed by economist Ronald Coase in 1960.
• The theorem highlights how, under certain conditions, private bargaining can resolve externality problems without government intervention.
• The absence of transaction costs is crucial for the theorem's validity, as high transaction costs could prevent efficient negotiations.
• The presence of complete property rights allows individuals to negotiate over the allocation of resources and resolve disputes.
• Complete information is necessary for parties to understand the consequences of their actions and reach mutually beneficial agreements.
• The Coase theorem primarily focuses on efficient resource allocation and how market participants can negotiate to internalize externalities.