Externality,Coase's Theorem and Optimal Property Rights Structure

Private cost and benefit deviates from social cost and benefit, this is one of the most common problem for economic society. One of such inconsistence is Pigou's government intervene. R.Coase gives a forceful challenge on Pigou's solution. Coase suggests that (in some ideal condition) Pareto-optimal resource allocation can be achieved by private bargain rather than Pigou's government intervene, and such private bargain is independent from liability statute (Coase's Theorem). This paper discusses social optimality, competition solution, Pigou's solution and Coase's solution under Externality respectively by a simple mathematic model, and using a numeral example to specify relationship between property rights and efficiency of resource allocation.