In the event that the steel firm induces pollution to the fishery farm that is situated downstream; Solutions to solve the negative externality that is induced by the steel firm An externality is a cost or a benefit imposed upon someone by actions taken by others. The cost or benefit is thus generated externally to that somebody. Negative externalities ; Air pollution, water pollution, Traffic congestion, second hand smoking etc.(www.economicsonline.co.uk,2015) Positive externalities ; Improved driving habits that reduce accident risks, A well-maintained property next door that raises the market value of your property, A pleasant cologne or scent worn by the person seated next to you.

1. Post Graduate Diploma In Business Management
Module : PDB10100- SM
PDB10100 Managerial Economics Presentation
Guided By : Mr. Ken Chua
Presented By : Group No 04
Date : 17.06.2016
In the event that the steel firm
induces pollution to the fishery farm
that is situated downstream;
Solutions to solve the negative externality
that is induced by the steel firm

2. Content
Introduction
Who has the property rights?
Solutions (not) viable
Recommendations
2

3. Introduction
 An externality is a cost or a benefit imposed upon
someone by actions taken by others.
 The cost or benefit is thus generated externally to
that somebody.
 Negative externalities ; Air pollution, water
pollution, Traffic congestion, second hand
smoking etc.(www.economicsonline.co.uk,2015)
 Positive externalities ; Improved driving habits
that reduce accident risks, A well-maintained
property next door that raises the market value
of your property, A pleasant cologne or scent
worn by the person seated next to you. 3

4. Introduction; How the pollution happens
4

5. Property Rights
 Legal rules which describing what people or
farms may do with their property.
 Define the rights, privileges, and limitations for
use of resources.
 If there is no property rights on resources;
producers exploit them and generate a negative
externalities.
5

6. Who has the property rights?
 Fishery farm downstream owned the river (clean
water) they control upstream emission.
 And factory also have a right to discharge liquid
wastage to river.
 Only mention unclear property rights
6

7. Solutions (not) Viable
(Assignments of property rights)
1. Taxes on the pollution created by the steel firms.
Shortcoming; The optimal tax level may be different to
determine.
(Economics instruments) 7

8. Solutions; Continue
2. Pollution permits
 Assign a fixed no of pollution permits to the steel firm so that
the steel firm cannot pollute over the optimal level.
 Externalities
 Problem maker
Short coming: Should the firm is interested in maintain output. It
has to switch to new and cleaner technology.
Steel Firm
Fish Farm
Pollution
8

9. Solutions; Continue
3. Command and control
3.1 Builder filter and refinery to clean up the pollution.
The cost will be split among the fish farm and the
steel firm.
Short coming – the notion of fairness may be difficult to
determine
3.2 The fish farm may be asked to relocate.
The fish farm will be given subsidy to do so.
Shortcoming: it is not a solution that really asked solves
the root cause of the problem. The steel firm is still
creating pollution 9

10. Solutions; Continue
3.3 The steel firm is asked to relocate
It is given subsidy to relocate
Shortcoming: it is not a solution that really asked solves
the root cause of the problem. The steel firm is still
creating pollution in another place.
3.4 Government taking up the responsibility by building a
filler and refinery to reduce pollution
Short coming – where does the government get the
funding from? Does it imply that taxes will be raised?
10

11. Solutions; Continue
3.5 What happens is the government ask the firms to
resolve the problems on their own?
The conflict is likely to persist
The steel firms not going to reduce pollution. Because
it does not have an economic incentive to do so.
the fish firm will relocate
the fish farm will build refinery
Shortcoming -: the polluter is not being punished. The
problem may be solved. However, the notion of
fairness is questionable.
11

12. Solutions; Continue
4. Legal Solutions –suing for damage
*Fish men have right to clean water
Factory has two options – No filter, pay damages
Filter, no damages
*Factory has right to emit effluent
Fish men has three option – Put a treatment plan
Filter and pay damage
No plant, No filter
Shortcoming: Both the parties has equal right to take legal
actions
12

13. Recommendations
 Merges
Suppose the two firms merge to become one. New
firm can achieve highest profit with out any effect.
 Combinations
Combine two entities together , then one will not
harm the other.
 Rent Seeking
Use the resources in lobbying and other activities
directed at securing legislations
13

14. Recommendations ; Continue
 Legal rules and procedures
Injection A court order for continuing
behaviour for make the damage
 Direct government regulations
Implementing government rules to stop the
damage.
14

15.  Bargaining and economic efficiency
This can make when few parties effected
Can achieved without government intervention
And property rights are well defended.
Factory profit Fish men
profit
Total Profit
No filter, no treatment
plant
500 100 600
Filter, no treatment
plant
300 500 800
No filter, treatment
plant
500 200 700
Filter, treatment plant 300 300 600
Recommendations ; Continue
15

16.  Bargaining with alternative property rights
There is a right to dump and also there is a right to
clean water
Right to dump Right to clean
No Corporation
Factory profit 500 300
Fish men profit 200 500
Corporation
Factory profit 550 300
Fish men profit 250 500
Recommendations ; Continue
16

17. References
 Property rights and externalities, (2015) [ON LINE]
Available at:
http://www1.udel.edu/johnmack/frec324/324lec04.html
(Accessed 16 June 2016, 09.00 pm)
 Negative externalities, (2015) [ON LINE] Available at:
http://www.economicsonline.co.uk/Market_failures/Exte
rnalities.html (Accessed 14 June 2016, 08.30 pm)
 Negative externality, (2015) [ON LINE] Available at:
http://economics.fundamentalfinance.com/negative-
externality.php (Accessed 16 June 2016, 09.00 pm)
17

18. Group Members
Name FIN Number
Apsara Kaduruwana G1543259X
Sanjeewa Samudhra G1562452W
Mohomed Yasith Arafath G1541587N
18

19. Thank You
19