6. Private solutions to correct for externalities Aa Aa Suppose that a chicken f

Question

6. Private solutions to correct for externalities Aa Aa Suppose that a chicken farm uses a nearby stream to dispose of the wastes released by its chickens. These wastes flow downstream into a lake that has become thick with algae and polluted due to the minerals in the waste matter. The local office of a nonprofit environmental organization successfully lobbies state regulators to stop the farm's pollution Which of the following types of private solution to the externality of pollution has occurred in this case? O Charities O Contracts O Integration of different types of businesses O Moral codes and social sanctions However, if the chicken farm and the nonprofit environmental organization could negotiate with , then the negative externality could be resolved by the two parties alone-at least according to a well-known economic proposition called the Nevertheless, private solutions to externalities do not always work. One of the primary occurrences of this is when an excessive amount of time or money must be spent for parties to reach an agreement. This describes the problem of

Explanation / Answer

Charities- The Non-profit environmental organization is involved in actions connected with the protection of the environment and is supported by the government.

However, if the chicken farm and nonprofit environmental organization could negotiate with good intentions, then the negative externality could be resolved by the two parties alone-at least according to a well-known economic proposition called the Coase theorem.

Nevertheless, private solutions do not always work. One of the primary occurrences of this is when an excessive amount of time or money must be spent for parties to reach an agreement. This describes the problem of transaction costs.

(Transaction costsare the costs involved with agreeing to and Following through on a bargain. They are usually measured in terms oF time or money).

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