The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Private parties may fail to bargain to an efficient solution under a variety of circumstances. First, the transaction costs of bargaining may be so high that one or both of the parties decides not to bargain. Second, the bargaining may not take place if one or both of the parties believes that the agreement cannot be enforced. Third, one or both of the parties may try to hold out for a better deal, in which case the bargaining process breaks down. Fourth, if there are a large number of parties taking part in the negotiations, the costs of coordination may be so great that the bargaining is not successful.