According to the Coase Theorem, private bargaining can efficiently resolve the problem of externalities (like pollution) without government intervention, provided that:

Answer: Property rights are clearly defined and transaction costs are negligible or zero

Ronald Coase argued that if people can negotiate cheaply and it is legally clear who owns the right to the resource (e.g., the right to clean air vs. the right to pollute), the affected parties will naturally strike a mutually beneficial deal to internalize the externality. However, in reality, high transaction costs (lawyers, organizing millions of citizens) usually make this impossible, necessitating state regulation.