A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate rights to play music during particular times. The most likely reason that this does NOT happen is that:

Select one:

a. most students don't view loud music as a negative externality.

b. agreements arising from such negotiations could not be enforced.

c. most students are unfamiliar with the Coase theorem.

d. the transaction costs associated with identifying and establishing communication with students would be high.

d. the transaction costs associated with identifying and establishing communication with students would be high.

Explanation:

A negative externality is the cost which is suffered by any third party as the consequence of any transaction made. In any transaction that is made, the producer of the transaction and the party which receives the transaction are the first party and the second party respectively. And those parties which is not directly related or influenced with the transaction is called the third party.

When loud music played in the college campus is a negative externality because playing such loud music will affect the third party and no compensation will be provided to them.

One of the reason that does not permit to internalize the idea of playing loud music in college campus is because the transaction cost would be very high in identifying and establishing the communication with the students to negotiate the rights to play music.

Hence the answer is - -

d. the transaction costs associated with identifying and establishing communication with students would be high.