Question

It is said many externalities in environmental economics have features that are similar to that of public goods. We know that the provision of some public goods such as lighthouse can be solved through the market rather effectively. Why is it more difficult to solve the provision of many environmental good such as clear air through the market?

Answer 1

Externalities are the side effects of the economic activities that are borne by the third parties. Environmental facilities as well as the public good have externalities. But the public externalities are solved through the private mechanism but it does not provide solution to the environmental externalities.

In case of externalities, the private mechanism is successful as long as there is small group when the group size rises, the problem of the freerider becomes more predominant.

answered by: anonymous