two. Coase theorem: when property legal rights are usually not defined clearly, but there is some chance of costless bargaining involving the party resulting in the destructive externality plus the affected party then such negotiations and bargains may result into socially best effects in the market.
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For instance: if there is generation of the market of pollution via assignment of distinct residence legal rights in which an individual owns a river and possess a right to scrub waters, then he can charge firms for resulting in pollution in his river by charging a price tag equivalent to marginal external Price caused by for every unit of pollution (a adverse manufacturing externality).
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Lack of house rights generally bring about negative externalities ensuing into inefficient allocation of sources. A straightforward case in point from daily lifetime: community roads usually are not owned by any private entity.