The correct answer is Government intervention is not always necessary to solve externality problems
The Coase Theorem says that, in an economic transaction with externalities, if property rights are well defined and if the transaction costs are low enough, then the private solution is socially optimal, with no need for government intervention to correct the situation. externality, which is a market failure. The government's only role would be to ensure that property rights are well defined and that free trade flows without transaction costs.
