ECON-2086EL Chapter Notes - Chapter 10: Natural Capital, Externality, Invisible Hand

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The (cid:373)arket operates u(cid:374)der the (cid:862)i(cid:374)(cid:448)isi(cid:271)le ha(cid:374)d(cid:863) theory proposed (cid:271)y ada(cid:373) (cid:373)ith. Ho(cid:449)e(cid:448)er, so(cid:373)e regulation is required when it comes to the market failure of externalities such as pollution. In turn, it is required that any regulation, policy, or penalty must (cid:271)e as (cid:862)(cid:373)arket-like(cid:863) as possi(cid:271)le (cid:374)ot to disrupt the system. It is proposed that individuals (in the market) act on incentives rather than impactful deterrents. Market mechanisms can include things such as pollution taxes, subsidies, and markets for emission permits. In order to understand the market you must understand property rights that can be held by individuals, companies, and the government. In order for property rights to work they must include the following: The owner can exclude others from the property. The rights of the property must be allowed to be transferred owners this results in the most valuable allocation of property.

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