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Negative Externality - Micro economics homework question help?
Let's assume that a animal farm is polluting a nearby lake. It's uses the lake to dispose the wastes released by animals. The local office of a nonprofit environmental organization expects to successfully force state regulators to stop the farm's pollution.
Which of the following types of private solution to the externality of pollution has occured in this case?
1. Contracts
2.Integration of different types of businesses
3.Moral codes and social sanctions
4. Charities
Personally I believe its # 4, Charities.
However, if the animla farm and the non-profit enviromental organization could negotiate with _1._______, then the negative externality could be resolved by the two parties alone - at least according to a well known economic proposition known as Coase theorem.
What matches best for blank number 1?
1.good intentions
2. zero bargaining cost
3. an equitable initial distribution of rights
Anyone has any idea?
Charities usually deal with positive externalities.
Since environmental non-profit is likely sponsored by whoever is affected by pollution, #3 is more likely.
Coase theorem requires zero bargaining costs:
http://en.wikipedia.org/wiki/Coase_theorem