A familiar example of a negative externality is traffic congestion.In principle,it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times.The most likely reason that these negotiations do NOT happen is that:
A)most individuals are unfamiliar with the Coase theorem.
B)the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive.
C)agreements arising from such negotiations could not be enforced since the Constitution guarantees all individuals freedom of access to all public roads.
D)lawyers would find a way to prohibit such negotiations unless they were actively involved,thus making transaction costs prohibitive.

Question

Quizplus · Accepted Answer

The transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive, making negotiations difficult to organize and enforce. Most individuals may not be familiar with the Coase theorem, but this is not the main reason why negotiations do not happen. The Constitution does not guarantee freedom of access to all public roads, and lawyers' involvement may increase transaction costs, but these are not the primary reasons why negotiations do not occur.

A Familiar Example of a Negative Externality Is Traffic Congestion