(1) The government can promote the output of positive external effects through subsidies or direct public sector production; it can limit or contain the output of negative external effects through direct regulation, such as government Administrative orders can be used to rigidly stipulate specific pollution emissions, and enterprises or individuals must control the amount of pollution below this legal level, or the government can levy pollution taxes and other methods to control environmental pollution problems of enterprises or individuals.
(2) Taxes can be levied on negative externalities and subsidies can be provided on positive externalities. Taxation can inhibit economic activities that produce negative externalities; subsidies can stimulate economic activities that produce positive externalities.
(3) If there is division of property rights, transaction costs are low and the number of participants is small, people can solve externality problems through private negotiations.
Extended information
Externalities, also known as spillover effects, external influences, external effects or external effects, external economies, refer to the actions and decisions of one person or a group of people that cause another A situation in which a person or group of persons is harmed or benefited. Economic externalities are the non-market impacts caused by the economic activities of economic entities (including manufacturers or individuals) on others and society.
That is, when members of society (including organizations and individuals) engage in economic activities, the costs and consequences are not entirely borne by the actor.
When external effects occur, they generally cannot be adjusted through the spontaneous action of market mechanisms to achieve the purpose of effective allocation of social resources. Since the existence of external effects cannot be solved through market mechanisms, the government should shoulder this responsibility.
Reference materials Baidu Encyclopedia Externalities