Preventing Negative Externalities

This article deals with different situations that pollution taxes on productions successfully prevented companies from polluting. The first example of the article discusses the oil companies wanting to sell dirtier and cheaper fuel. The government response to this was to impose a tax on the sale of the dirtier oil that cut the profits and actually made it more expensive than the cleaner fuel. Although Coase says government is not necessary, the result of the government intervention lead to the same result. With dirtier fuels no longer being profitable, the oil companies shut down production of the dirtier and began finding sources of cleaner fuel. Since the oil producers were liable for the negative externalities they were forced to internalize the costs of it and because the costs out weighed the benefits the oil companies stopped production of the dirtier fuel.