Eirene Jude P.

Gomez 11-C

What is the best control mechanism for negative externalities and why?

Taxation would be the best control mechanism a government could implement for
negative externalities. Accordingly, a government has an option to either ban, place a quota, or
tax negative externalities. In the first scenario, it may seem that implementing a ban may be the
key to eliminating the negative surplus of these products. However, by doing so, the government
would then be removing the possible surplus from society, thereby letting go of the possible
benefits society could have gotten from the product. On the other hand, the government may also
place a quota on the supply of the product. As a result, the produced quantity would equal to the
surplus quantity determined by the supply and demand curve, thereby eliminating the negative
surplus. This method, however, has a drawback as it is apparently difficult to accurately
determine how the marginal cost curve and marginal benefit curve look like. This is because the
conditions in a market- such as the number of competitors-are constantly changing, thereby
making it difficult to accurately pinpoint on what the equilibrium quantity is. Taxation of the
products, on the other hand, would seem to be the best option of these scenarios. In this process,
all the government needs is the information on the average cost of this negative externality. The
tax implemented would then equate to this cost, thereby eliminating the negative surplus no
matter how the marginal cost curve looks like. On the long run, the government would also be
gaining a revenue from this process, which may then be used to further improve the economy.