Externality

1
Chapter 14

• Externality

2
Externality

• Positive externality
• (Spillover Benefit) Flu shots
• Negative externality
• (Spillover Cost) Pollution

3
Public Measures

• Positive Externality Subsidy
• Negative Externality Taxation
• Achieve optimal market allocation
• Close the gap between social cost-benefit and
  private cost-benefit