Targeting the Source of an Externality: Input vs. Output Policies
When a negative externality arises from a specific production input, such as the pesticide chlordecone, policies that directly target that input are more effective than those aimed at the final product. Regulating or taxing the harmful input provides a direct incentive for firms to find and adopt less damaging alternatives, thereby addressing the root cause of the externality more efficiently than general restrictions on output. [2, 3, 4]
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
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