With defined property rights, an externality

Question

Quizplus · Accepted Answer

When property rights are well-defined, it may be possible for parties to negotiate and arrive at a mutually beneficial agreement to internalize the externality. This can be done through voluntary contracting, such as bargaining or the creation of Coasean bargaining. Therefore, option C is the correct answer. Options A, B, and D are incorrect because government intervention may not always be necessary, a misallocation of resources can still occur, and externality does not necessarily lead to production inside the production possibilities frontier.

With Defined Property Rights, an Externality