Final answer:
The statement is false; while better-defined property rights can mitigate externalities, they do not eliminate them entirely.
Step-by-step explanation:
The assertion that there would be no externalities if property rights were completely defined is false. While better-defined property rights can help in dealing with externalities, they do not guarantee the complete elimination of all externalities. This is because externalities are complex and can arise from various sources, not just from the absence of well-defined property rights.
Ronald Coase, a Nobel Prize-winning economist, illustrated the concept of externalities through the example of a railroad emitting sparks and potentially setting a farmer's field on fire. Coase argued that clearly identifying who has the legal rights of ownership helps determine responsibility for costs associated with the externality.
In this case, whether the railway should install a gadget to prevent sparks or if the farmer should erect a fence. The establishment of property rights incentivizes the responsible party to seek and finance the least costly prevention method.
Despite these insights, it is worth noting that fully defining property rights cannot always prevent externalities due to various other factors like transaction costs, incomplete information, and non-excludable public interests that might be involved.