When might an externality problem be resolved without government intervention, according to the Coase theorem?

The Coase theorem suggests that externalities can be resolved efficiently through bargaining between parties if certain conditions are met, without the need for government intervention. A key condition for this to occur is the existence of well-defined property rights. When property rights are clearly established, the parties involved have a clear understanding of who owns what and can negotiate the terms of their interactions without confusion over ownership or use.

This clarity facilitates negotiations, allowing affected parties to come to mutually beneficial agreements. For example, if a factory pollutes a river owned by a resident, the resident has the right to negotiate with the factory owner to find a solution, such as the factory paying for the damage or investing in cleaner technology. The presence of well-defined property rights encourages parties to internalize the external costs or benefits, leading to an efficient outcome without the need for government regulations or intervention.

In contrast, if property rights are ambiguous or poorly defined, it would likely lead to confusion and difficulties in negotiation, making it challenging to resolve the externality.