How can subsidies be used to mitigate negative externalities, considering the Coase theorem's implications on environmental impact?

Subsidies are financial support given by the government to encourage certain behaviors or activities that are beneficial for society, especially in reducing negative externalities like pollution. According to the Coase theorem, if property rights are well-defined and transaction costs are low, parties can negotiate solutions to externalities without government intervention. However, when these conditions are not met, subsidies can help by making environmentally friendly options more affordable. For example, if a government provides subsidies for electric vehicles, more people may choose them over gas-powered cars, leading to less air pollution. This way, subsidies can effectively reduce negative externalities by promoting choices that have a positive impact on the environment.