When a particular negative externality affects a very large number of people, it is likely that
A)government will not find it worthwhile to impose a corrective tax.
B)private solutions to the problem will dominate any attempt by government to alleviate the problem.
C)the solution to externalities suggested by the Coase theorem will work very well.
D)the solution to externalities suggested by the Coase theorem will not work.

Question

Quizplus · Accepted Answer

The Coase theorem suggests that if property rights are clearly defined and transaction costs are low, private parties can negotiate a solution to the externality problem without government intervention. However, when a negative externality affects a large number of people, it can be difficult or impossible for private parties to negotiate a solution. The costs and coordination needed for a private solution may be too high, making government intervention necessary. Therefore, the solution suggested by the Coase theorem will not work in this case.

When a Particular Negative Externality Affects a Very Large Number