Part 7/8:
There are, however, essential conditions for the Coase theorem to hold effective. First, property rights must be enforceable and monitored. If pollution levels cannot be accurately tracked—such as in the air or ocean scenarios—then the underlying principles of Coase's theorem cannot be applied successfully.
Second, low transaction costs are crucial. Both parties involved (like the park and the paper mill) must have clear visibility into pollution levels and the associated costs and benefits to negotiate effectively. If knowledge is lacking or transaction costs are high, the efficiency predicted by Coase may not materialize.