The Economics Consequences Of Internalization Of Negative Externalities

The economics consequences of internalization of negative externalities.

Restricting Quantity of goods or pollution produced – the benefit of this is of course now firms have to find reason to find an innovative ways to reduce the pollution. The difficulty is that the monetary costs are quite high.

Letting the fishermen to asign the property rights, may initionaly seem that it could stop him using fertilizer on a land. However now the farmer as the incentive and a knowledge to negotiate with the fishermen down the strain. The fishermen will allow some positive nano-fertilizer but not as much as before. In each scenario we could come to a solution that internalazes the externality or overcomes it. The fishermen and the farmer now know the cost the externality and are enable to negotiate in order to overcome it. The benefit of this to other regulations is that the monetary costs are very small. There is an incentive way for fishermen and a farmer to find ways to reduce the negative impact and social wellfare.

About the Coase Theorem. This theorem overcomes these monetary costs by using local information and it‘s not available to an agent determining the taxation or regulations.

And If other countries do not have environmental policy, competitiveness decreases.

And for Demand : Demand may decrease because of more expensive supply;

The price increases to consumers because - part of the fees paid by consumers when buying products price rise. This also would cause less output production.