The Coase theorem states that taxes are an efcient way for governments to remedy negative externalities. subsidies are an efficient way for governments to remedy positive externalities. industrial policies encourage technology spillovers. in the absence of transaction costs, private parties can solve the problem of extemalities on their own. PM???\" Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that Dick pays Jane $600 for her inconvenience. Jane pays Dick $650 to give the dog to his parents who live on an isolated farm. Jane pays Dick $800 to give the dog to his parents who live on an isolated farm. There is no private transaction that would improve this situation. PIP?!\