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The uncompensated impact of one person's actions on the well-being of a bystander.
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| Internalizing the Externality |
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Altering incentives so that people take account of the external effects of their actions.
Make people think about actions more. |
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| A tax designed to induce private decisions makers to take account of the social costs that arise from a negative externality. |
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| The proposition that if private parties can bargain without costs over the allocation of resources, they can solve the problem of externalities on their own. |
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| Government can remedy an externality by... |
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| making certain behaviors forbidden or required. |
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| Negative externalities cause markets to produce... |
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| more than what is socially desirable. |
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| Positive Externalities cause markets to produce... |
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| less than what is socially desirable. |
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| ____ gives more incentive than regulations |
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The costs that parties incur in the process of agreeing to and following through on a bargain
high transaction costs will not lead to a solution |
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