Market Failures: Negative Externalities

This lecture discusses market failures caused by negative externalities, where harmful side-effects of actions are not compensated. It covers the concept of external vs internal benefits and costs, the tragedy of the commons, and distorted incentives due to unpriced resources. The instructor explains why perfect internalization does not happen spontaneously, the impact of negative externalities on market incentives, and the challenges of creating property rights for non-excludable goods like clean air. The lecture concludes with strategies to address negative externalities, such as pricing resources, implementing standards and regulations, and promoting corporate social responsibility.