According to the Coase theorem, private parties can solve the problem of externalities if ?

A. there are no transaction costs.
B. each affected party has equal power in the negotiations.
C. the party affected by the externality has the initial property right to be left alone.
D. There are a large number of affected parties.
E. the government requires them to negotiate with each other

Correct Answer: there are no transaction costs. ✔

Last Updated: June 11, 2019