According to the Coase theorem, externalities can be internalized when transactions costs are zero through:

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The Coase theorem suggests that externalities can be internalized through the assignment of property rights to use resources and allowing the free exchange of these rights. This allows individuals involved in the externality to negotiate and find the most efficient solution without the need for government intervention or corrective taxes/subsidies. When property rights are assigned and exchange is allowed, parties can negotiate and reach an agreement that maximizes the joint value of their activities.

According to the Coase Theorem, Externalities Can Be Internalized When