ECON 200 Lecture Notes - Lecture 27: Coase Theorem, Golden Rule, Externality
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ECON 200 Full Course Notes
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Econ 200 i lecture 27 public and private solutions to externalities. Public policies toward externalities: command and control policies regulate behavior directly, ex. Limits on quantity pollution emitted, require firms to adopt certain technology to reduce pollution: market-based policies provide incentives so that private decision-makers will choose to solve the problem on their own, ex. What are they: corrective tax: a tax designed to induce private decision makers to understand negative externalities. Ideal corrective tax = external cost: corrective subsidy: a subsidy designed to induce private decision makers to understand positive externalities. Corrective tax vs. regulation: corrective taxes reduce pollution at lower costs than regulation. Firms with low costs of reducing pollution will do so to avoid paying the tax. Firms with high costs will just pay the tax. Corrective taxes and subsidies increase economic welfare: they increase total surplus, making the economy more efficient.
