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Unformatted text preview: Industry policy : to subsidizes the industry with the biggest spillover *patents/property right gives firms incentive Solve inefficiency by internalizing the externality or through contracts Doesnt work due to transaction costs ex. Lawyer fees Hard to agree: especially if more people are involved Command and control policy: direct regulation Pigovian tax = increases efficiency / closer to social optimum + gov revenue + provides incentive to be more efficient ex. Reducing pollution Pollution permits might be better than taxes...
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- Winter '10