What is a requirement for the Coase theorem to be effective?

The effectiveness of the Coase theorem hinges on the clear assignment of property rights. According to the theorem, if property rights are well-defined and enforced, parties can negotiate solutions to externalities (such as pollution or resource depletion) effectively without the need for government intervention, even in the presence of externalities. This clarity allows for the negotiation of mutually beneficial agreements since all parties understand their rights and responsibilities. When property rights are ambiguous, negotiation is complicated, which can lead to disputes and inefficient outcomes.

The other factors mentioned would undermine the conditions necessary for the Coase theorem to operate effectively. High transaction costs could prevent parties from negotiating, government ownership would imply that private negotiation may not be applicable, and an abundance of resources may not relate directly to the assignment of rights and negotiation, which are central to the theorem. Thus, it is the clear assignment of property rights that is crucial for facilitating smooth and effective negotiations and solutions as proposed by the Coase theorem.