Policies to Minimize Negative Externalities


Production and consumption of goods and services contributes in different ways to the economy resulting to either economic growth or recession. According to Channon (1999), externalities involve the production and consumption of some products and services that give rise to harmful or beneficial effects to the user.

Hirschey (2008) believes that exposure of employees to harsh working environment with unsatisfactory compensation can also be termed as negative externality. Externalities are types of market failures that exist when prices in a market do not reflect the true costs or benefits associated with consumption and production.

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The objective of this paper is to analyze ways of minimizing negative externalities such as emissions. This because of the complex definition of property rights in law. For instance, an industry could pollute the environment but will not bear the cost of the harmful effect, but it will pass its cost of cleaning to the community.

Government intervention strategies can be used to reduce the impact of gas emission. The government can work with the community through regulating and influence decision-making by policy formulation and implementation of laws, like mandatory inspection of emission gases. Policies on bans on goods and services that lead to harmful effects on the environment should be enacted and backed by legal measures for lawbreakers.

The government can also provide emission permits that enable the concerned party to emit a specified level of gas for a certain period. The government can impose taxes on products that pollute the environment. Secondly, the government can come up with public awareness policy in which it will stipulate measures of making the public aware of the importance of reduced emissions and environmental conservation.

Information is power and the moment consumers are aware of the benefits of environmental conservation, they will always act in favor of the environment and on the side that will benefit them as a community. Government intervention strategies are more economical, efficient and the implementation process is less demanding. The government has the power and machinery to implement every policy. What is required is the political will and all will be done (Nordhaus, 1991).

When emission of gas is reduced, the rate of global warming is reduced. Less emission of gas preserves the environment and it reduces environmental degradation by toxic waste. The health of the community is improved as air pollution related deaths are minimized.

Transaction Costs will be incurred through monitoring, enforcing, and negotiation of marketing activities. The government and the community would incur financial costs. Other costs incurred include sacrifices in terms of time and other resources used in environmental conservation through reduced emissions.

Nordhaus (1991) believes that any level of gas emission (high or low) leaves the society worse off in terms of high costs of production accompanied by environmental damages. The level of negative externality should always be lower than positive externalities. Therefore, the cost benefit analysis should leave all stakeholders better off with more benefits than costs.


Appropriate environmental policies such as taxation and ban on harmful product manufacture can help reduce emissions of gases and negative effects to the environment. In addition, instead of focusing only on policies that reduce emission of gases, the state needs to put more emphasis on ways and mechanisms to cope and adapt to global warming.


Channon, F.D. (1999). The Blackwell encyclopedic dictionary of strategic management. Oxford. Wiley Blackwell Inc.

Hirschey, M. (2008). Management economics. 12 Edn. Ohio, OH: Cengage Learning.

Nordhaus, D.W. (1991). To slow or not to slow: The economics of the greenhouse effect. The Economic Journal, 101(407), 1-10.