Question

There is no need for government intervention when positive externalities are present because no one is being harmed”. Discuss the validity of this statement.

Answer 1

This statement is invalid

It is true that there is no harm but the role of the government is not restricted to prevention of economic harm. its role is extended to increase the benefit generated from economic activities if the market outcome is not letting the society enjoying the benefits. In case of positive externalities the market outcome is too littlecompared to the efficient outcome because the external benefit is not realised by the market participants. Government has to provide subsidies in order to encourage such activities. Therefore positive externalities also call for government intervention, not to prevent any harm but to extend the benefit.