Deadweight Loss
Categories: Econ, Financial Theory, Tax
Negative and positive externalities both cause what we call “deadweight loss,” which measures how inefficient things are for society.
We’d prefer no deadweight loss, which would mean everyone’s paying for what they’re getting. People that have to deal with negative externalities would get paid for it, and people with positive externalities would pay for the freebies they’re getting.
When it’s clear what belongs to who, it’s easier to work out externality problems.