In this module we introduce positive externalities, such as alternative energy sources, and demonstrate that government intervention can be used to stimulate the positive impacts and may in turn raise economic efficiency. We then turn to a discussion of the Coase Theorem and the potential for private mechanisms to solve externality problems. We highlight why transactions costs may prevent private solutions from arising. Finally, we note the important distinction between pecuniary and non-pecuniary externalities and explain why pecuniary external effects should not be corrected to maintain economic efficiency.

Positive Externalities - 15 minutes

The Coase Theorem - 31 minutes

Pecuniary vs Non-pecuniary Externalities - 1 minute