9. Private solutions to correct for externalities Aa Aa Suppose that Sally has j

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9. Private solutions to correct for externalities Aa Aa Suppose that Sally has just finished smoking a cigarette and is thinking about throwing the cigarette butt onto her neighbour Michael's driveway. Although no police officers are around, she decides instead, to carry it to a garbage can because she doesn't want to embarrass herself by letting people see her littering Which of the following types of private solution to the externality of littering has occurred in this case? O Charities O Moral codes and social sanctions O Contracts O Integration of different types of businesses In other situations involving externalities, the solution above may not be applicable. In such cases, a well-known economic proposition states that people can also efficiently deal with externalities if they can bargain at zero cost This economic proposition is known as the Coase theorem Nevertheless, private solutions to externalities do not always work. One of the primary occurrences of this is when communications barriers or customs are important enough relative to the potential gains involved that a private solution is not feasible QNA 3. 14 2004-2013 Aplia. All rights reserved Grade It Now Save & Continue 2013 Cengage Learning except as noted. All rights reserved

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