Question

What are specific examples of governemnt measures or priavte solutions used to deal with positive and negative externalities?

Answer 1

PRIVATE-SECTOR SOLUTIONS TO NEGATIVE EXTERNALITIE: When there are well-defined property rights and costless bargaining, then negotiations between the party creating the externality and the party affected by the externality can bring about the socially optimal market quantity The efficient solution to an externality does not depend on which party is assigned the property rights, as long as someone is assigned those rights. this is called coase theorem.

PUBLIC SECTOR REMEDIES FOR EXTERNALITIES

The Environmental Protection Agency (EPA) was formed in 1970 to provide public-sector solutions to the problems of externalities in the environment. Public policy makers employ two types of remedies to resolve the problems associated with negative externalities: 1) price policy: corrective tax or subsidy equal to marginal damage per unit 2) quantity regulation: government forces firms to produce the socially efficient quantity