Describe the advantages and disadvantages of using taxes and bounties to regulate negative externalities

Advantages of taxing and bounties of negative externality :

If negative externalities are taxed than the possibility of social and public cost which arise from an activity might reduce since producers have to pay taxes as pollution increases , hence there is a possibility that it might reduce pollution.

Bounties if given than the cost of production will fall and producers can utilise the reduced cost in buying more efficient technology which can reduce the negative externality.

Disadvantage:

If bounties are given in negative externalities in the form of subsidies than price of the commodities will reduce and then the consumption can increase further which will create more negative externalities.

Taxes always increase the market price of commodities thereby leading to increase in burden on consumers and hence inflation in economy arises.

Advantages when individual sue to regulate negative externalities :

In such a case when individuals hold rights ,then consumer awareness arises and consumer become more aware of their rights thereby reducing the possibility of reduced negative externality .

Disadvantage :

Holding rights of property is non beneficial when individuals follow the adverse selection approach and uses their rights immorally against producers then in such a case social cost of negative externality arises further ....