Question

Consider the following scenario: Imagine that a chicken farm uses a nearby stream to dispose of the wastes released by its chickens. These wastes flow downstream into a lake that has become thick with algae and polluted by the minerals in the waste matter. The local office of a nonprofit environmental organisation collects enough donations to fund a campaign to stop the farm's pollution. Which of the following types of private solutions to the externality of pollution has occurred in this case? CMoral codes and social sanctions CCharities Contracts Integration of different types of businesses through merger or acquisition It's important to note that sometimes private solutions to externalities do not work. For example, this occurs when the number of parties involved is so large that it makes the market failure from the externality unimportant/coordinating negotiations among all of the parties too costly/government action the only viable solution.

Answer 1

Charities are the private solutions to the externality of pollution has occurred in this case. Hence, the pollution externality is addressed by a charity i.e., non profit environmental organisation.

It's important to note that sometimes private solutions to externalities do not work. For example, this occurs when the number of parties involved is so large that it makes coordinating negotiations among all of the parties too costly. Because, it will become too costly transaction costs and also difficult to coordinate with many people who are contributing to an externality.

Answer 2