Asked by Carlos Trejo on Apr 26, 2024
Verified
When one party suffers negative external effects due to the actions of another party, a lawsuit may not lead to the efficient outcome if:
A) property rights are not clearly assigned.
B) the parties have incomplete information.
C) the legal costs of the lawsuit are too high.
D) all of the above
Negative External Effects
Negative impacts of an economic activity on third parties who are not directly involved in the transaction.
Efficient Outcome
A situation where resources are allocated in the most effective manner, maximizing benefits and minimizing waste.
Lawsuit
A legal action brought in a court by a plaintiff against a defendant, typically seeking compensation for some form of harm or enforcement of a right.
- Understand the concept of externalities and their impact on efficiency in economic activities.
- Examine the role of property rights and legal frameworks in improving the handling and efficiency of common property resources.
Verified Answer
JR
Joslín RëddApr 27, 2024
Final Answer :
D
Explanation :
All of the above factors can contribute to a lawsuit not leading to an efficient outcome in cases of negative externalities. Without clear property rights, it may be difficult to establish who is responsible for the damages caused. Incomplete information can make it difficult to accurately assess the damages suffered and determine the appropriate compensation. Finally, high legal costs can discourage parties from pursuing a lawsuit, even if it is in their best interest.
Learning Objectives
- Understand the concept of externalities and their impact on efficiency in economic activities.
- Examine the role of property rights and legal frameworks in improving the handling and efficiency of common property resources.