Final answer:
The downside to targeting specific activities rather than the externality itself is that it may not fully capture the cost or impact of the externality. By focusing on specific activities, there may be unintended consequences or a failure to address the root cause of the externalities.
Step-by-step explanation:
The downside to targeting specific activities rather than the externality itself is that it may not fully capture the cost or impact of the externality. By focusing on specific activities, such as implementing taxes or regulations on certain industries, there may be unintended consequences or a failure to address the root cause of the externalities.
For example, if the goal is to reduce air pollution caused by manufacturing activities, targeting specific industries may lead to a shift in production to other industries that are not regulated. This could result in the displacement of pollution rather than its reduction.
Additionally, targeting specific activities may not address the externalities caused by individual actions. For instance, if individuals are causing negative externalities by not properly disposing of waste, focusing solely on regulating industries will not address this issue.