Comment on the following statement: When a firm retains earnings ...

[j.rubin]

Comment on the following statement: When a firm retains earnings for investment purposes, it is actually saving on behalf of its shareholders.
 
  What will be an ideal response?

Question 2

Why does the absence of well-defined property rights serve as a stumbling block for the application of the Coase theorem?
 
  What will be an ideal response?

[ultraflyy23]

Answer to Question 1

The statement is true. If the firm did not retain its profits, it would distribute them to shareholders in the form of dividends. Households could then decide whether to save these funds or spend them. Thus, by making the decision to hold onto a portion of its profits, it is making the decision to save these profits on behalf of its shareholders.

Answer to Question 2

Well-defined property rights are necessary in order for the possibility of
Bargaining between parties. If property rights are not well-defined there really
would be no point in bargaining.

[j.rubin]

Correct answers!

[ultraflyy23]

Great! Please up vote