Question

What are ways the government can prompt a producer to internalize pollution costs that were previously external?

Answer 1

The government can prompt a producer to internalize pollution costs by implementing pollution taxes, which incentivize firms to reduce pollution and choose the social optimum.

Step-by-step explanation:

A way the government can prompt a producer to internalize pollution costs that were previously external is by implementing pollution taxes. With pollution taxes, firms face an additional cost for polluting goods, which incentivizes them to reduce pollution and choose the social optimum. For example, a carbon tax is a type of pollution tax that directly taxes carbon dioxide. This approach encourages firms with lower costs of abatement to undertake pollution control, while those with higher costs can continue to pollute and pay the tax.

Answer 2

There are three ways to deal with negative externalities: 1.- taxation 2.-regulation and 3.- property rights. Taxaxion puts an adititional economic burden on polluting companies. Regulation can be in imposed when the government requires a technological fix or limiting the quantity of goods or pollution produced and the property rights solution is also called the Coase theorem. Because it is difficult to explain I will put an example that happened in Peru a big mining was polluting the environment specially some olive farms that complained to the company and the company agreed to pay certain amount. This agreement was reached without government intervention which is key to understand this solution: It is without government intervention.