Discuss the various ways governments can handle externalities, such as
noise from a local airport or...

Question

Discuss the various ways governments can handle externalities, such as
noise from a local airport or a barking dog or building of commercial office
space or an industrial building in a residential area? How does the assignment
of property rights affect the outcome? Under what circumstances would a
socially optimal solution arise without any government intervention? Under what
circumstances would government intervention likely move the outcome closer to a
socially optimal solution?

Robert · Accepted Answer

Discuss the various ways governments can handle externalities, such as noise from a local airport or a barking dog or building of commercial office space or an industrial building in a residential area? How does the assignment of property rights affect the outcome? Under what circumstances would a socially optimal solution arise without any government intervention? Under what circumstances would government intervention likely move the outcome closer to a socially optimal solution?
One option is to impose a per unit tax on production of the good whose product in is causing the externality.  Such a tax was proposed by Pigou, after whom the tax is called a Pigouvian tax.  
The other option is to give rights to either of the parties that is creating the externality or to the party which is getting affected. .

Discuss the various ways governments can handle externalities, such as noise from a local airport or a barking dog or building of commercial office space or an industrial building in a residential...

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