The major problem facing private parties wishing to solve an externality problem is that transaction costs may prevent such a solution from occurring.

Question

Quizplus · Accepted Answer

Transaction costs refer to the costs incurred during the negotiation and enforcement of a solution to an externality problem. These costs could include legal fees, time spent on negotiations, and monitoring and enforcing the agreement. These costs can be significant and may prevent private parties from being able to negotiate an efficient solution to the externality problem. Therefore, the statement is true.

The Major Problem Facing Private Parties Wishing to Solve an Externality