The classical argument is that when trying to address externalities you can turn to either regulation or strong property rights (if your factory pollutes a lake

The classical argument is that when trying to address externalities you can turn to either regulation or strong property rights (if your factory pollutes a lake the citizens using it for drinking water will sue). Regulation can sometimes lead to inefficiency. Free-market evangelists tend to strongly favor the property rights solution. But one of the interesting things about the property rights case is that it seems to fall apart when both the responsibility and cost are diffuse. Probably the best example would be climate change. It's impossible to address with property rights because there would be so many plaintiffs and so many defendants that attributing who did what would be impossible. Climate change is the ultimate externality.