Market solutions to externality problems are more likely to occur when:
A) the costs of reaching an agreement are low and property rights are well defined.
B) the transaction costs are low and property rights are nonexistent.
C) transaction costs are high and property rights are well defined.
D) the costs of reaching an agreement are high and property rights are nonexistent.

Question

Quizplus · Accepted Answer

Market solutions to externality problems require clear property rights and low transaction costs for agreements to be reached. When property rights are well defined, it is clear who has the right to use a particular resource or property and who can exclude others from using it. This makes it easier to negotiate and enforce agreements. Low transaction costs, on the other hand, make it easier for people to come to an agreement on how to handle an externality problem. If the costs of reaching an agreement are low, people are more likely to cooperate and find mutually beneficial solutions.

Market Solutions to Externality Problems Are More Likely to Occur