Program

Why do positive externalities lead to a failure of the normal free-market mechanism? Where substantial positive externalities exist, the good or service may be under consumed or under provided since the free market may fail to take into account their effects. This is because the marginal social benefits of consuming the good > private marginal benefits. In the case of external benefits from production, the marginal social cost would be private marginal costs. Consider the example of health care. Good quality health care brings positive spill over effects both for the recipient of the care but also their families and associates. A well functioning health care system also reduces the scale of absenteeism from work d...