What result could private contracts between parties with mutual interests lead to
A)They can only reduce the well-being of society.
B)They will always lead to market outcomes in which the public interest is sacrificed for personal gain.
C)They can solve some inefficiencies associated with positive externalities.
D)They will always cause negative externalities to arise.

Question

Quizplus · Accepted Answer

Private contracts between parties with mutual interests can provide solutions to inefficiencies associated with positive externalities. For example, if two firms agree to jointly invest in a new technology that will have positive spillover effects on the wider industry, the private contract will incentivize both parties to invest, which can bring about a market outcome that benefits both them and the wider economy.

What Result Could Private Contracts Between Parties with Mutual Interests