Anonymous asked in Social ScienceEconomics · 1 month ago

Suggest one policy change and explain how it will internalise the externality?

An excerpt from The Economist,

"When free markets do not maximise society's welfare, they are said to 'fail' and policy intervention may be needed to correct them. Many economists have described climate change as an example of a market failure – though in fact a number of distinct market failures have been identified.

The core one is the so-called 'greenhouse-gas externality'. Greenhouse gas emissions are a side-effect of economically valuable activities. Most of the impacts of emissions do not fall on those conducting the activities – instead they fall on future generations or people living in developing countries, for example – so those responsible for the emissions do not pay the cost. The adverse effects of greenhouse gases are therefore 'external' to the market, which means there is usually only an ethical – rather than an economic – incentive for businesses and consumers to reduce their emissions. As a result, the market fails by over-producing greenhouse gases."

Economists concerned about this market failure argue for policy intervention to internalise this externality.

2 Answers

  • Oiy
    Lv 6
    4 weeks ago

    The environmentalists like Greta and Co. did not allow the Coase Theorem to function.

  • JuanB
    Lv 7
    1 month ago

    fines, fees or extra tax paid by polluters 

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