The Comparing Research On Government Intervention And Market Adjustment To Externalities

Externalities are almost one of the main issues confronted by economic development now and before. They have created great effects on enterprise production and people living activities .Hence ,based on analysis and research on externalities ,providing solutions making externalities internalization, which important interests on both theory and practice.This article firstly introduces the theory frontier of externalities, shows the development and reform on this problem of western economists, which is the presumption of the model and case analysis of this article. Following that gives the reasons of externalities, tells the phenomenon and categories of externalities in real economic society, then analyzes costs and yields of positive and negative externalities, tells how to resolve the problem of externalities formerly. In a simple three-person (government, two producers or consumers) economic society, when information is full and market is completely competitive, whether use the government policy such as Pigou tax or ownership advocated by Coase can realize the internalization of externalities , meanwhile they have the same effects. In order to make my argument more convince. This article uses specific mathematical method according to the presumption to analyze the solution force and effects of the two methods on resolving the problem of externalities internalization.All these analysis based on the presumption of completely competitive market, while, real society is more complicate, information is by no mean full and is asymmetrical either, hence, both market and government exist the phenomenon of malfunction in a different degree. This article analyzes the limitation of traditional solutions on externalities, providing some theoretical thoughts on resolving externalities and also some suggestions on policy.My conclusions are these: 1) In a simple full information society, both government and market are effective on reducing the social fare loss caused by externalities. 2) In a more complicate problem of externalities, market is no moreeffective than government, vice verse. 3) Information is correlated to the existing of externalities, information asymmetry and uncertainty can lead to externalities. These conclusions on externalities break through some theory conceptions of traditional externalities. That is the inefficiency caused by externalities is sufficient condition of the microscopic interference of the government, and there is an obvious border among externalities, incomplete competition, information asymmetry and public goods.