Which would be the MOST likely place to find an internalized externality? (Keep transaction costs in mind.)
A) a factory polluting the air surrounding a large suburb
B) a wind farm slightly disturbing the mountain view of a nearby city
C) a paper mill polluting a stream that only flows into a single farm
D) roadwork operating on a major highway, but only operating at night

Question

Quizplus · Accepted Answer

In this scenario, the external harm is limited to a single farm and not shared broadly with society, which makes it easier for the farm to internalize the cost. Additionally, there may be a lower transaction cost to negotiate a compensation package between the two parties (paper mill and farm). In comparison, options A and B have considerably more diffuse impacts, and the affected parties may find it more difficult to organize effectively. Option D also has diffuse consequences, but it could be more manageable given that the work only takes place at night.

Which Would Be the MOST Likely Place to Find an Internalized