"This issue of other people using one's property rights has long existed with physical property. If you're neighbor doesn't wish to keep the music or odor or pollution he produces on his property, which is usually the case, he exports onto other people's property. Causing an earthquake on someone else's property [a reference to recent events surrounding fracking] is not an issue of bargaining over conflicting property rights, its taking someone else's property rights away. Ditto placing toxic fumes on other people's land. Because the party producing those fumes only has the property rights to its own property, not to someone else's. If the music one neighbor produces crosses the boundary onto property someone else is paying for, the producer of that music is trespassing. Sure, to some degree, everyone produces externalities, but the question is, how big can the externalities be before they must be regulated?"
As I said in previous posts, questions of externalities are always questions about standing. Everyone has subjective values. What we identify as externalities and how we solve those externalities revolves around determination of which subjective values "count".
This is one of many reasons why I always feel like barfing every time I hear "free market economist" used as a synonym for "libertarian economist". It's quite easy to make the case that the "free market" solution to pollution would be to outlaw any and all actitivies that pollute, because they all violate property rights. Property rights should be sacrosanct in a market economy, so anyone that isn't in support of outlawing all pollution as a violation of property rights is really thumbing their nose at the market economy. Almost all of us choose to abandon "free market economics" interpreted this way. Instead, we like having states that give monopoly priveleges that allow polluters to impose some costs on other citizens. Libertarians love trampling over these rights, along with a lot of non-libertarians like me. Nobody is a "free market economist". At least in that interpretation of "rights" (which logically speaking is not all that crazy of an interpretation, despite its problems on a pragmatic level).
The point: (1.) all these things are crucially dependent on underlying understandings about rights and standing, and (2.) stop using the term "free market economist".