Why can't private individuals always internalize an externality without the help of government?
A)Legal restrictions prevent side payments between individuals.
B)Transactions costs may be too high.
C)Side payments between individuals are inefficient.
D)Side payments between individuals are insufficient.

Question

Quizplus · Accepted Answer

In order for private individuals to internalize an externality, they would need to negotiate a side payment or make changes to their behavior that account for the external cost. However, the transaction costs of negotiating these side payments may be too high for individuals, making it more efficient for the government to intervene and implement policies to address the externality.

Why Can't Private Individuals Always Internalize an Externality Without the Help