Final answer:
The Coase Theorem may fail to facilitate efficient bargaining and resolution of externalities due to high transaction costs. Better-defined property rights can help but do not eliminate these issues entirely. Both market-based and government interventions have strengths and weaknesses in addressing externalities.
Step-by-step explanation:
The Coase Theorem doesn't always work because transaction costs may be high and prevent efficient bargaining. This answer corresponds to option b) from the provided choices. The Coase Theorem posits that if property rights are well defined and transaction costs are low, externalities can be negotiated away by the parties involved to reach an efficient outcome without the need for government intervention.
However, the real-world complexities, such as high transaction costs, can impede these negotiations, making it impractical or impossible to achieve an efficient resolution. While better-defined property rights can indeed strike a balance between economic activity and pollution, they are not a silver bullet; transaction and conformity costs may still be high. These costs can include bargaining expenses, legal fees, and informational costs that together act as barriers to successful negotiations.
Moreover, the assumption that government intervention is not needed, or that it is always less efficient than market solutions, is also challenged. Government action, despite not always reflecting majority views or being perfect, can sometimes be crucial in setting frameworks and regulations that guide and facilitate such bargaining or in cases where transaction costs are prohibitively high.