According to the Coase theorem,the inefficiencies caused by externalities can be removed by the private sector if individuals enter into appropriately structured deals,provided that the transaction costs of such deals are sufficiently low.

Coase Theorem

Suggests that if property rights are clearly defined and transaction costs are low, parties will negotiate to solve externalities on their own.

Externalities

Costs or benefits that affect a party who did not choose to incur that cost or benefit, often leading to market failures.

Private Sector

The part of the economy that is run by individuals and companies for profit and is not state controlled.