Private solutions to externalities are most likely to occur when there are:
A) well-defined property rights and low transaction costs.
B) communal property rights and large numbers of sellers.
C) private property rights and high transaction costs.
D) communal property rights and large numbers of buyers and sellers with equal bargaining power.

Question

Quizplus · Accepted Answer

Well-defined property rights allow individuals to clearly identify the costs and benefits of their actions, which is important in addressing externalities. Additionally, low transaction costs make it easier for individuals to negotiate and reach mutually beneficial agreements to address the externality. Communal property rights and large numbers of buyers/sellers can make it difficult to identify and assign responsibility for the externality, and high transaction costs can make it prohibitively expensive to negotiate agreements to address the issue.

Private Solutions to Externalities Are Most Likely to Occur When