A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times. The most likely reason that this does NOT happen is that:
A) most students are unfamiliar with the Coase theorem.
B) the transaction costs associated with identifying and establishing communication with students would be high.
C) agreements arising from such negotiations could not be enforced.
D) most students don't view loud music as a negative externality.

Question

Quizplus · Accepted Answer

The transaction costs associated with identifying and establishing communication with students would be high, making it impractical to negotiate rights effectively.

A Familiar Example of a Negative Externality Is Loud Music