Private solutions to correct for externalities Consider the following scenario:

1.) Suppose that a chicken farm uses a nearby stream to dispose of the wastes released by its chickens. These wastes flow downstream into a lake that has become thick with algae and polluted by the minerals in the waste matter. The local office of a nonprofit environmental organization collects enough donations to fund a campaign to stop the farm's pollution.

Which of the following types of private solutions to the externality of pollution has occurred in this case?

Integration of different types of businesses through merger or acquisition
Charities
Moral codes and social sanctions
Contracts

2.) It's important to note that sometimes private solutions to externalities do not work. For example, this occurs when communications barriers or social customs are important enough relative to the potential gains involved that _______ .

Solutions

Expert Solution

Rahul Sunny answered 2 years ago

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