Private parties can negotiate a solution to an externality in all cases.

Question

Quizplus · Accepted Answer

In some cases, private parties may not have the incentive or ability to negotiate a solution to an externality. For example, if the negative externalities of a factory's pollution affect a large number of people, it may be difficult for those affected to organize and negotiate a solution with the factory owner. Additionally, if the transaction costs of negotiating a solution are too high, it may not be feasible for private parties to reach an agreement. In such cases, government intervention may be necessary to address the externality.

Private Parties Can Negotiate a Solution to an Externality in All