Our discussions have led to two conclusions:
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unregulated market behaviour may fail to produce socially efficient outcomes in the presence of externalities;
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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
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firms are prohibited from doing things the social costs of which exceed the social benefits, or
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firms should be given incentives to not do things for which the social costs exceed the social benefits.
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