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First, how does the externality affect the individual's loss probability and loss severity?
The Pigouvian tax solution to a pollution externality places responsibility on the firm producing the pollution.
To provide one example, traffic congestion is a negative externality in which one person's decision to drive harms others.
But this externality is the product of government policy-namely, the provision of government protection to creditors through an ambiguous, implicit financial safety net.
carrot and a stick to deal with this externality, and it applies those
This is at least 3 times higher than the sum of the second externality in order (N[O.
For example, if there is a negative externality from segregation, it may be optimal to have a harsher penalty for a hate crime committed against a black family living in an otherwise all-white neighborhood than for an otherwise-identical hate crime committed against a black family living in a black neighborhood, in order to provide better incentives for integrating neighborhoods.
Figure 1 plots the two eigenvalues as functions of the externality parameter 17.
Security externality is a key concept, but economics offers a broader framework to make sense of security issues.
As the second term is not dependent on the extent of externality, this method is preferable when externalities are large, that is, [alpha] [greater than or equal to] [?