Which of the following conditions is necessary in order for the private market to efficiently solve an externality problem?
A) The person who creates the externality must have the legal right to do so.
B) The person harmed by the externality must have a legal right to be compensated.
C) The value of any side payment must be smaller than the marginal cost of producing the externality.
D) The value of any side payment must be smaller than the marginal cost of creating the externality.
E) Side payments must be arranged without cost.
Correct Answer:
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