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Key Concepts:

Terms in this set (39)

-Command and control: Alabama has a law where you have to go to school until you are at least 16
-Market Based Policies: includes taxes and subsidies
-Corrective tax (Pigovian tax): designed to induce private decision makers to take account of the social cost that arises from a negative externality (gas tax goes to fixing roads so the guy that causes more damage to the road is going to pay more for gas)
-Corrective Subsidy: a payment from the government designed to induce private decision makers to take account of the social value that arises from a positive externality; makes it cheaper for you to consume a good or service; in-state tuition gives people more of an incentive to do something to reduce "brain drain effect"
-Tradeable (Pollution) Permits: EPA limits the number of pollution permits (supply) and the intersection with the demand curve for pollution rights determines the price of pollution; works well when EPA wants to regulate pollution to an acceptable level but is unsure of the demand curve for pollution (and thus appropriate size of tax needed to induce optimal behavior)
-Private Solutions to Externalities (The Coase Theorem): not involving the government; as long as there is property rights, if you don't like a house, you can buy it and tear it down; the initial distribution of rights does not matter as long as they exist (can matter in terms of outcome but in terms of who has to pay for the outcome); if he has the right to let the dog bark (in the country) you're going to be paying to get rid of the dog to have peace and quiet but if he doesn't have the right (apartment in NYC) then you don't have to pay to get rid of the dog. In both instances the dog is gone