Command and control may be the best approach to handling externalities if:
A) flexibility is desired.
B) the marginal social cost of the externality is greater than the social benefit.
C) taxes and/or subsidies fail to reach the efficient outcome.
D) success requires strong compliance.

Question

Quizplus · Accepted Answer

Command and control approaches involve direct regulation and enforcement, which require strong compliance to be successful in addressing externalities. If compliance is weak, the approach is unlikely to be effective. This approach may be necessary if other approaches, such as taxes or subsidies, do not reach the efficient outcome. However, command and control approaches are often inflexible and may not be the best option if flexibility is desired. Moreover, the marginal social cost of the externality being greater than the social benefit does not necessarily imply that command and control is the best approach.

Command and Control May Be the Best Approach to Handling