Our discussions have led to two conclusions:
unregulated market behaviour may fail to produce socially efficient outcomes in the presence of externalities;
direct bargaining can lead to efficient outcomes, but is unlikely to be feasible where externalities take the form of significant effects on the natural environment.
Can public policy provide a framework within which efficiency gains are achievable? An affirmative answer can be given to this question. In order to achieve efficiency gains, public policy should be directed so that either
firms are prohibited from doing things the social costs of which exceed the social benefits, or
firms should be given incentives to not do things for which the social costs exceed the social benefits.