Suppose 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 due to the minerals in the waste matter. The local office of a nonprofit environmental organization collects enough donations to stop the farm's pollution.
Which of the following types of private solutions to the externality of pollution has occurred in this case?
(Contacts, moral codes and social sanctions, 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...
(government action the only viable solution, the market failure from the externality unimportant, coordinating negotiations among all of the parties too costly)