Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. WithFilterWithoutFilterGains to Erie$200$400Fisherman$180$50Bird Watchers$130$25Suppose you observe that Erie has not added a filter. You could conclude that the Coase theorem failed to solve the externality problem because:
A. regulators prevent application of the Coase theorem when the environment is at stake.
B. negotiation with many individual fishermen and bird watchers was too costly.
C. Erie's benefits to operating without a filter are greater than the benefits of a filter to the fishermen and bird watchers.
D. Erie has a property right to the river.
Answer: B
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