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 and how should the issue be resolved?

The circumstances under which private bargaining fail to produce a solution are as follows:

1. Transaction cost: In the case, when the transaction cost is too high then either one or both the parties decide not to bargain as it raises the cost of utilizing the resource and vice versa.

2. Not an optimal deal: Sometimes, the parties involved in a transaction may hold one transaction so acquire a better opportunity or deal making the bargaining process breaks down.

3. No. of parties involved: In general notion, if there is a large number of parties who are involved in the bargaining then there is an increment in the cost of coordination up to the level where the bargaining becomes unsuccessful.

4. Agreement enforcement: If there is a belief that the given agreement cannot be enforced then the bargaining will not take place.